Fed Governor Waller answers questions after R speech in New York

Fed Governor Waller answers questions after R speech in New York

Federal Reserve Governor Christopher Waller has sparked debate among monetary policymakers with his call for an immediate rate cut. Speaking at an event hosted by the Money Marketeers in New York, Waller argued that the Fed should reduce its policy rate by 25 basis points at the upcoming meeting, scheduled for July 29-30. His stance contrasts with the views of many of his colleagues who see the employment landscape as still solid and prefer to wait before lowering rates [1].

Waller's primary concern is the labor market, which he described as "on the edge." He cited data showing that the economy has slowed significantly, with real GDP growth estimated to be around 1 percent in the first half of 2025 and expected to remain soft for the rest of the year. The unemployment rate, currently at 4.1 percent, is near the Committee's longer-run estimate, but other indicators suggest that the labor market is at risk of deterioration [1].

Waller also addressed the impact of tariffs, stating that while they may cause temporary price increases, they do not pose a persistent threat to inflation. He believes that inflation expectations remain anchored and that wage growth is not accelerating. This view is shared by several other Fed officials, including New York Fed President John Williams, who has warned that the full impact of tariffs is yet to be felt but expects them to boost inflation by about 1 percentage point over the second half of this year and the first part of next year [2].

Waller's call for an immediate rate cut is supported by his view that the policy rate should be close to neutral, not restrictive. He believes that the current rate is 1.25 to 1.50 percentage points above the neutral rate of 3 percent, as estimated by the median of FOMC participants. He also expects the economy to "remain soft" for the rest of 2025, which he argues justifies a rate cut to support the labor market [1].

Waller's remarks have generated interest among investors, who now see slightly better than even odds of a rate cut in September, according to futures contracts. However, many Fed officials remain in a wait-and-see mode, preferring to monitor the impact of tariffs on inflation before making a decision [2].

Waller's speech comes amid ongoing uncertainty about the Fed's stance on interest rates and the potential impact of tariffs on the economy. His call for an immediate rate cut highlights the differing views among policymakers and underscores the challenges they face in navigating the complex economic landscape.

References:
[1] https://www.bloomberg.com/news/articles/2025-07-17/waller-says-fed-should-cut-rates-now-with-labor-market-on-edge
[2] https://www.businesstimes.com.sg/international/feds-new-york-president-says-tariff-economic-impact-only-just-starting