Fed’s Waller backs July rate cut and warns delay could hurt economy

Federal Reserve Governor Christopher Waller still supports interest rate cuts at the end of July, despite growing concerns over a possible tariff-induced inflation.

At a meeting of the Money Marketeers of New York University, he remarked, “I believe it makes sense to cut the FOMC’s policy rate by 25 basis points two weeks from now.” 

Waller believes tariff-induced inflation is only temporary

According to Waller, the economic and labor market data show that the economy is still growing, though more slowly.

He argued, however, that unemployment risks have risen, warranting a rate reduction. The Fed Reserve Governor believes a weaker job market is “greater and sufficient” to cut interest rates, adding that policymakers should not wait for a deeper decline in the labor market.

He added that they can choose to disregard the short-term impact of tariffs and instead prioritize broader economic concerns.

In his view, more attention should be directed toward underlying inflation, which is dangerously close to the Fed’s 2% goal, rather than temporary tariff-related price pressures. Even before Thursday, Waller had previously insisted that tariff effects would only be temporary.

The Feds are set to meet from July 29 to July 30 in Washington to discuss policies and possible rate cuts. So far, among Fed officials, Waller and Vice Chair for Supervision Michelle Bowman are the only two to express a willingness to consider rate reductions as early as this month.

Other officials like Governor Adriana Kugler and New York Fed President John Williams, however, over tariff fears, have suggested that policymakers should wait longer before slashing rates.

Investors anticipate that rate cuts will be implemented in September

US June’s data showed a less-than-expected rise in core inflation for the fifth consecutive month, even as Trump’s April tariff announcements augmented the cost of certain items. Waller predicts that the economy will “remain soft” for the remainder of 2025 after only growing at a slow 1% rate in the first six months. 

Nevertheless, most investors believe the central bank will maintain interest rates as they are after the meeting this month. However, they expect the Feds to reduce rates later in September.

Waller, when asked about possible September rate cuts, said that any additional cuts beyond this month would entirely rely on incoming economic data. He said he prefers they start now, not waiting until the labor market plunges.

Waller is still being considered to be one of the possible successors to Fed Chair Jerome Powell, when his term ends. However, Waller stated he has not discussed the position with any administration officials.

President Donald Trump has been at odds with Powell for months now. He has consistently asked Powell to lower interest rates, but those calls have been dismissed. Recently, the Fed chair also came under fire over the renovation at the central bank’s headquarters. Some Republicans have accused Powell of excessive spending on the project, urging more investigations into the matter.

When asked to comment on the renovation issue, Waller noted that in his experience, construction projects often face similar challenges, emphasizing that while he wasn’t defending the situation, it wasn’t uncommon. He added that inflation had turned out to be much higher than anticipated when bids were made in 2017, stating that it’s clearly a factor.