Waller Advocates for Interest Rate Cuts
On Thursday, Federal Reserve Governor Christopher Waller expressed support for cutting interest rates in July. He observed that “risks to the economy are weighted towards reductions [rates] sooner rather than later.” This statement was made during an event hosted by financial marketers at New York University.
Waller explained that, “firstly, tariffs result in a one-time increase in price levels that doesn’t lead to ongoing inflation beyond a temporary spike.” He emphasized that central banking practices typically involve examining the effects of these price levels as long as inflation expectations remain stable.
He further noted, “secondly, numerous data points suggest that monetary policy should aim for a neutral stance rather than one that’s restrictive.” Waller indicated that growth in real Gross Domestic Product (GDP) might be around 1% for the first half of the year, with expectations of continued softness for the rest of 2025.
Additionally, he mentioned that the national unemployment rate stands at 4.1%, which is “close to the committee’s long-term estimate.” Waller pointed out that “headline inflation is slightly above the 2% target if we disregard temporary tariff impacts.” In summary, he suggested that “the data implies the policy rate is around neutral.”
Waller has been seen as a potential candidate to succeed Jerome Powell as Fed Chairman. He argued that with inflation rates “close to the target,” the Federal Reserve should not wait for deterioration in the labor market before making adjustments.
His concern extends to the labor market; he stated, “While it appears robust on the surface, upcoming data revisions may show private sector wage growth stalling, and other indicators suggest the labor market’s downside risks are rising.” He insisted that the Fed should take action before conditions worsen.
Currently, the Fed is under pressure from President Donald Trump to lower interest rates this year. Moreover, William Prute, the director of the Federal Housing and Finance Agency (FHFA), has also urged Jerome Powell to consider rate cuts.
Recently, Trump referred to Powell in less than flattering terms, highlighting frustration with his leadership. Waller reiterated that the evidence of a slowing economy and other factors indicates that the risks associated with employment levels are significant enough to warrant a reassessment of monetary policy.
