Christopher Waller Calls for July Rate Cut, Boosting Odds to 4.7%

Fed Governor Christopher Waller advocates for a 25-basis-point rate cut in July, citing weakening labor market and transitory tariff-related inflation. He believes the policy rate should be around neutral, which is higher than the current 1.25-1.50 percentage points above 3 percent. Investors place the odds of a July rate cut at 4.7%.

Title: Federal Reserve Governor Christopher Waller Advocates for July Rate Cut

Federal Reserve Governor Christopher Waller has called for an urgent 25-basis-point rate cut at the upcoming July 29-30 meeting. In remarks delivered at the Money Marketeers Forum at New York University, Waller cited weakening labor market data and transitory tariff-related inflation as reasons for the proposed cut [1].

Waller noted that while the economy is still growing, its momentum has significantly slowed. He pointed to the June consumer and producer price inflation data, which suggest that the 12-month inflation rate is nearing the Fed's target. Waller believes these data reflect a modest effect from tariff increases that began in February and expects further tariff-induced increases to inflation later this year [1].

Despite tariff uncertainties, stock market investors remain optimistic. The S&P 500 and Nasdaq Composite indices hit fresh highs on Thursday, with the Invesco QQQ Trust (QQQ) and SPDR S&P 500 ETF (SPY) gaining over 10% and nearly 8% respectively this year [1].

Waller sees PCE inflation rising three-tenths of a percent to 1% in 2025 if there is a permanent increase in import tariffs of about 10%. He expects this increase to fade over the next year or so, but acknowledges that tariffs may have a larger effect on inflation than anticipated [1].

Waller believes that the monetary policy is currently modestly restrictive and that the time has come to resume moving toward a neutral policy setting. He would support further 25-basis-point cuts to achieve this goal. Four more rate-setting meetings are scheduled for this year, and Waller sees the risks to the economy as weighted toward cutting sooner rather than later [1].

While the labor market appears strong on the surface, Waller expressed concerns about the private sector. He noted that half of the U.S.'s employment growth last month came from the public sector, indicating that the private sector is not performing as well as expected. Waller likened the situation to walking on ice and starting to hear cracking sounds [4].

San Francisco Federal Reserve President Mary Daly also reiterated that it is "reasonable" to expect two interest rate cuts before the end of this year. She believes that while inflation is still above the Fed's 2% target, it is not necessary to slow precipitously to produce the last mile on inflation. Daly expects the policy rate to settle at an ultimate point of 3% or higher [3].

Investors place the odds of a July rate cut at 4.7%, with financial markets focusing more on the September 16-17 meeting as a more likely time for the policy easing to resume [3].

References:
[1] https://stocktwits.com/news-articles/markets/equity/fed-governor-waller-calls-for-urgent-rate-cut-at-july-meeting/ch8ka6AR5pS
[2] https://www.rismedia.com/2025/07/17/fed-governor-waller-rate-cuts-fomc-july-2025/
[3] https://www.investing.com/news/economy-news/feds-daly-says-reasonable-to-expect-two-rate-cuts-before-end-of-2025-4140496
[4] https://seekingalpha.com/news/4468901-signs-of-labor-market-weakness-support-a-rate-cut-feds-waller-says