Waller says Fed is ready for another cut as labor market weakens

Federal Reserve Governor Christopher Waller expressed his belief that it would be wise for the central bank to reduce interest rates again at their next meeting, scheduled for December this year.

He based his reasoning on current serious events such as the weak job market and monetary policies that are significantly harming low- and middle-income consumers.

The Governor made these remarks in a speech titled “The Case for Continuing Rate Cuts,” which was delivered in London. At this time, he explained that considering another rate cut is a prudent choice because it will enable the Federal Open Market Committee, which is responsible for setting interest rates, to manage risks.

When reporters asked Waller about his view on inflation hikes, he mentioned that he was not worried about inflation surging rapidly or expectations of inflation soaring significantly, citing the existence of clear signs that demand for employees is weakening. 

Waller sticks to his view that another rate cut is essential 

During his address at the Society of Professional Economists Annual Dinner, Waller stated, “With underlying inflation near the FOMC’s target and signs of a weak labor market, I support cutting the committee’s policy rate by another 25 basis points at our December meeting.”

He also mentioned that his focus is currently on the job market. After several months of decline in the market, he expressed doubt whether the September jobs report, expected to be released later this week, or any other data in the following weeks, would prompt him to change his mind that another cut is necessary.

Regarding the September employment report, sources have indicated that it is expected to be released on Thursday, November 20. The release follows a delay resulting from the federal government shutdown. 

As Jerome Powell, the chair, pointed out: “The mixed picture makes it difficult to be sure: You can slow the rates down too soon, you can push upward on inflation, or you can wait too long, so you keep the labor force weak and that creates more unemployment.” That timing problem underscores the jitters that the Federal Reserve will face going into its December meeting.

Meanwhile, after several considerations, Walker concluded that families are experiencing the effects of high mortgage and auto loan expenses. The Governor also noted that while stock prices are escalating due to excitement ignited by increased adoption of AI, new jobs have not yet been created.

Although Waller has been a long-standing advocate for easier monetary policy on the Federal Open Market Committee, calling for a rate cut earlier this year, his recent remarks illustrate a widening gap between policymakers. Following this gap, some individuals raised concerns about ongoing inflation, while others expressed their worries about potential job losses. 

Fed officials remain divided in their decision about another rate cut 

In October, reports from reliable sources indicated that Fed officials had decided to lower their main interest rate by a quarter percentage point for the second consecutive time. The officials arrived at this decision because they remain anxious about the job market. 

However, after the decision, Jerome Powell, Chair of the Federal Reserve of the United States, mentioned that another rate cut in December is “not guaranteed,” during an interview.

Additionally, recent strong statements from other Fed officials have lowered the chances of a December cut to about 40%, down from nearly 100% just before the Fed’s meeting in October, based on federal funds futures contracts. 

Waller, who was chosen by Trump in 2020 to join the Fed’s Board of Governors, is one of five people the White House is thinking about for the Fed chair job when Powell’s term ends in May. 

The Fed policymakers will have their next meeting on December 9-10.  Waller mentioned, “A cut in December will help protect against a faster decline in the job market and adjust our policy to a more balanced position.”