Fed Revolt: Waller and Bowman Break Ranks as Bleak Jobs Report Fuels September Rate Cut Bets

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The Federal Reserve’s July policy meeting has already gone down in the history books for one reason: dissent. For the first time since 1993, two Fed governors—Christopher Waller and Michelle Bowman—publicly broke ranks with the FOMC majority. As per usual the reasons for the dissent were voiced on the following Friday. The two governors took the time to highlight their conviction that the Fed should have cut rates now rather than wait. Their case, focused on the growing downside risks in the labor market, received swift support from the latest U.S. jobs report, which revealed both a weaker-than-expected July print and unusually large downward revisions to prior months.

Governor Waller was direct in his reasoning: he believes monetary policy is already closer to neutral than restrictive and that keeping rates elevated risks tipping the labor market into a sudden decline. “While the job market looks fine on the surface, other data suggest that the downside risks to the labor market have increased,” he noted. Waller also dismissed concerns that tariffs would create a persistent inflation shock, calling them a “one-time price event” that policymakers should look through, provided inflation expectations remain anchored. For him, holding the policy rate at its current level is “overly cautious” and risks unnecessary damage to employment.

Governor Bowman’s remarks echoed Waller’s sense of urgency but leaned more explicitly on the Fed’s dual mandate. She highlighted a “less dynamic labor market” and argued that gradually moving rates toward neutral would hedge against further weakening. “If demand conditions do not improve, firms may have little option other than to begin to lay off workers,” Bowman warned. She emphasized that the upside risks to inflation have diminished and that tariffs do not present a lasting shock. In her view, the Fed should start putting more weight on its employment mandate to prevent lasting damage to job growth.

Their case was bolstered almost immediately by the July Nonfarm Payrolls report. Headline job gains were just 73,000, below the 110,000 expected, while the unemployment rate held at 4.2%. The more damning detail, however, came from the revisions: May’s payrolls were cut by 125,000 to +19,000, and June’s were reduced by 133,000 to just +14,000. Taken together, the revisions erased 258,000 jobs from the prior two months, signaling the labor market is much weaker than previously believed. Private payrolls fared slightly better at +83,000, but factory jobs fell by 11,000 and government jobs by 10,000. Average hourly earnings rose 0.3% on the month and 3.9% year-over-year, in line with expectations, suggesting wage growth remains steady but not accelerating.

The timing could not have been more telling. Both Waller and Bowman argued that delaying cuts risked a sharper deterioration in employment—and the jobs data underscored exactly that risk. The revisions show a labor market losing steam far faster than policymakers had assumed, lending credibility to the dissenters’ call for immediate action.

Markets responded swiftly. Treasury yields tumbled, with the 2-year dropping 14 basis points to 3.81% and the 10-year falling 8 bps to 4.32%. CME FedWatch futures now price a 75% chance of a 25-basis-point cut at the September meeting, up sharply from 45% before the report. Traders are also resuming full pricing for two Fed rate cuts by the end of 2025, reflecting a broad reassessment of the policy path. Equity markets initially staged a relief rally on the view that the Fed will have greater scope to ease, though stocks remain below intraday highs as investors balance relief over policy flexibility with concerns about slowing growth.

The dissent from Waller and Bowman is more than a footnote—it marks a pivotal moment in the Fed’s decision-making. For decades, dissenting votes at the Board of Governors level have been rare, and two in a single meeting is nearly unprecedented. The fact that their arguments immediately found validation in the labor data will only intensify pressure on Chair Jerome Powell and the majority of the FOMC to consider a pivot sooner rather than later.

The message is clear: the Fed’s internal debate has shifted. Inflation is no longer the lone concern; employment risks are now center stage. If incoming data in August confirm the weakness seen in July’s revisions, the September FOMC meeting could very well deliver the cut that Waller and Bowman already demanded. The dissenters may not have swayed the vote this week—but the jobs report may have just tipped the scales in their favor.