Fed's Divergence: Waller Backs December Rate Cut Amid Weak Jobs Market and Near-Target Inflation

The U.S. Federal Reserve faces mounting internal pressure to cut interest rates again in December, with Governor Christopher Waller reaffirming his support for a 25-basis-point reduction at the upcoming Federal Open Market Committee (FOMC) meeting. Waller, a consistent advocate for accommodative policy this year, cited a "weak" labor market and subdued inflation as key justifications for further easing . His stance contrasts with recent "hawkish" signals from other officials, creating uncertainty for markets that had initially priced in near-certainty for a rate cut .

Waller emphasized that the labor market's weakening trajectory—evidenced by rising state unemployment claims, increased layoffs, and stagnant wage growth—necessitates policy accommodation. "The labor market is still weak and near stall speed," he stated during a speech in London, noting that private-sector data from payroll processors and business surveys provide a "perfectly actionable picture" of economic conditions despite delayed official government statistics . He specifically highlighted the disconnect between a booming AI-driven stock market and persistent job market weakness, warning that high mortgage and auto loan rates are straining middle- and low-income households .

The Fed's policy debate has been complicated by the absence of critical data from the 43-day government shutdown. However, Waller argued that existing information—including ADP payroll reports, Conference Board surveys, and state-level unemployment claims—sufficiently supports rate cuts. "We have a wealth of private and some public-sector data," he said, dismissing concerns that the lack of official metrics creates a "fog" requiring policy delay . This position aligns with his broader skepticism about inflation risks, as he noted that core inflation excluding tariff effects is "relatively close" to the Fed's 2% target and sees "no evidence of building wage pressures" .

Waller's advocacy for rate cuts has positioned him as a prominent voice within the FOMC's "dovish" faction. He acknowledged that while policy disagreements are "healthy," excessively narrow voting margins—such as a hypothetical 7-5 split—could destabilize market expectations by making policy trajectories appear overly contingent on individual votes . This concern reflects broader tensions within the Fed, where some officials fear inflation remains "sticky" while others, like Waller, prioritize preventing a deeper labor market slowdown .

The central bank's next meeting on Dec. 9-10 will test these competing priorities. While the September nonfarm payrolls report—a key data point delayed by the government shutdown—is set to publish on Nov. 21, other critical employment and inflation metrics remain unannounced . Waller, however, remains confident that "the data is unlikely to show otherwise" once released, citing his own network of business contacts and consumer surveys to reinforce his assessment of deteriorating labor conditions .

For financial markets, the Fed's decision carries significant implications. Following recent "hawkish" remarks from officials, futures markets have slashed their probability of a December rate cut from near 100% to around 40% . This volatility underscores the challenge of parsing policy signals in an environment of internal Fed discord. Waller's unyielding support for a cut, meanwhile, highlights the growing influence of his potential candidacy to succeed Chair Jerome Powell—a prospect that could shape the central bank's long-term policy approach .