Federal Reserve Governor Calls for Immediate 25 Bps Rate Cut

Federal Reserve Governor Christopher Waller has advocated for an immediate reduction in interest rates by the next Federal Open Market Committee (FOMC) meeting, scheduled for July 29th. In a recent speech at New York University, Waller presented three primary reasons for why the Fed Funds Rate should be lowered by 25 basis points (bps) from its current range of 4.25% to 4.50%.

Waller addressed several key economic indicators, including tariffs, labor markets, and a range of data suggesting that GDP growth will remain subdued. He argued that tariffs are not as inflationary as commonly believed and are likely to cause only a temporary surge in prices rather than a sustained increase in inflationary pressures. Waller emphasized that an immediate rate cut would preempt an otherwise cooling economic climate in the US, rather than waiting for months as most FOMC members are planning.

“I also believe – and I hope the case I have made is convincing – that the risks to the economy are weighted toward cutting sooner rather than later,” Waller stated. “If the slowing of economic and employment growth were to accelerate and warrant moving toward a more neutral setting more quickly, then waiting until September or even later in the year would risk us falling behind the curve of appropriate policy. However, if we cut our target range in July and subsequent employment and inflation data point toward fewer cuts, we would have the option of holding policy steady for one or more meetings. For this reason, I believe it makes sense to cut the FOMC’s policy rate by 25 basis points two weeks from now.”

Waller does not anticipate a rebound in GDP in the second half of 2025. Based on current forecasts, he expects an annual GDP growth rate of around 1%, down from 2.4% in 2024. “Given the ups and downs of monthly indicators of GDP this year, we can best get a view of the performance of the economy by combining the first and second-quarter numbers. With the data in hand, estimates suggest that real GDP increased at an annual rate of about 1 percent in the first half of this year, compared with 2.8 percent in the second half of 2024. That comparison is important not only for the extent of the slowdown, which is considerable, but also because it is well below most estimates of the potential growth rate of the economy. Based on forward-looking indicators, I don’t expect a rebound in the second half – in fact, most forecasts suggest that real GDP growth will remain around 1 percent at an annual rate.”