Fed's December Rate Cut Debate Intensifies Amid Labor Market Concerns

Federal Reserve Governor Christopher Waller has reinforced his advocacy for a 25-basis-point rate cut at the December 9-10 policy meeting, citing deteriorating labor market conditions as a key justification . In remarks to the Society of Professional Economists in London, Waller noted that corporate executives are increasingly discussing layoffs as they prepare for weaker demand and AI-driven productivity gains, marking a shift from the "no-hire, no-fire" stance observed just weeks prior . This perspective aligns with his assessment that the labor market is "near stall speed," with critical employment data delayed by a 43-day government shutdown unlikely to alter his conclusion .

Waller's stance contrasts with internal Fed divisions, where several regional bank presidents argue inflation remains nearly 1 percentage point above the 2% target despite recent stability . He emphasized that tariff-related inflationary pressures are temporary, estimating core inflation at less than half a percentage point above target once these factors are excluded . This view underpins his argument for a "risk management" approach to monetary policy, prioritizing labor market stabilization over inflation risks .

The Fed's internal debate reflects broader economic tensions. Waller highlighted that high interest rates are exacerbating financial stress for households not benefiting from recent stock market gains, while slowing economic growth is constraining consumer spending . His analysis builds on survey data showing weakening labor market conditions among both consumers and businesses, with major employers signaling reduced hiring plans . These developments have intensified pressure on policymakers to recalibrate policy toward a "more neutral stance," particularly as wage growth remains subdued .

However, dissent persists within the Fed. Vice Chair Philip Jefferson has urged caution, advocating for a "slow" approach to further cuts despite shared concerns about employment risks . This divide mirrors broader policy disputes, with some officials arguing that inflation has shown insufficient progress to justify additional easing . Waller's potential consideration for Fed chairmanship under President Donald Trump adds political weight to his position, though he acknowledged the "unusually deep divide" among policymakers .