TLDR
- Waller supports rate cuts but warns against aggressive actions given mixed economic signals.
- The U.S. labor market shows weakness while GDP growth remains strong, creating uncertainty.
- Waller favors a cautious approach to rate cuts, following the Fed’s recent reduction.
- Waller’s interview focused on policy, with no political discussion, ahead of possible Fed Chair role.
Federal Reserve Governor Christopher Waller expressed support for lowering interest rates but emphasized the need for caution due to conflicting signals in the economy. In a recent interview, he stated that while he advocates for reducing rates, the Federal Reserve must avoid aggressive cuts that could lead to unintended consequences. Waller’s comments come as discussions about the U.S. economy and monetary policy continue to evolve.
Waller’s Views on Interest Rate Cuts
During an interview on CNBC, Waller reiterated his stance on interest rate reductions. He stated that he continues to believe the central bank should lower rates. However, he cautioned against acting too quickly or too aggressively.
According to Waller, the current economic indicators are mixed, making it necessary for the Fed to tread carefully. “I want to move towards cutting rates, but you’re not going to do it aggressively and fast,” he said. He stressed that taking such actions without proper caution could lead to significant errors in policy.
Waller pointed out that while the labor market has shown signs of weakness, with potential job losses, GDP growth remains strong. Inflation continues to run above the Fed’s target of 2%. This combination of factors creates uncertainty, which is why Waller advocates for a gradual approach to rate cuts. “Something’s got to give. Either the labor market rebounds to match the GDP growth, or that GDP growth is going to pull back,” Waller explained.
Economic Uncertainty and the Fed’s Response
Despite signs of job losses in the labor market, Waller acknowledged that GDP growth has remained robust. This discrepancy presents a challenge for the Federal Reserve as it assesses the overall economic health.
Waller’s cautious approach suggests that the Fed must weigh these conflicting signals carefully before making further policy adjustments. “Either way, it’s got to affect what you do with policy,” Waller noted, underlining the importance of balancing these economic factors in decision-making.
While the Fed has already made some rate cuts, including a 0.25% reduction in September 2024, Waller supports further reductions but with a measured pace. He noted that his comfort lies in the current pace of cuts, as indicated in the Federal Open Market Committee’s (FOMC) recent statements.
However, Waller warned against the idea of speeding up the rate cuts. “You can always adjust as you go as the data comes in,” he remarked. “If you went 75 [basis points] tomorrow, then you have a bit of a problem.”
Waller’s Potential Future Role at the Fed
Waller’s recent comments also come amid speculation about his future role in the Federal Reserve. A CNBC report revealed that Waller is one of five finalists being considered to replace Fed Chair Jerome Powell when his term expires in May 2026. Waller had recently interviewed with Treasury Secretary Scott Bessent as part of the selection process.
Waller expressed that his discussions with Bessent were focused solely on policy, with no political agenda involved. “It was actually a great interview. It was a lot of discussion about various aspects of the Fed,” Waller said.
The interview reportedly centered on Waller’s views on monetary policy, particularly his perspectives on past speeches he has given. Waller emphasized that the discussion was purely economic, without any political overtones. This focus on policy reflects his belief that economic considerations should drive decisions at the central bank, rather than political influences.
Outlook for Inflation and the Labor Market
On inflation, Waller shared his continued belief that the effects of former President Trump’s tariffs would be temporary. He believes that these impacts on inflation will fade over time, contributing to a more stable economic environment.
Waller also touched on the labor market, indicating that the past few months likely saw some job losses. While this presents a potential challenge, he remains cautious in his approach, given the broader context of the economy’s performance.
Waller’s comments reflect his careful consideration of current economic trends and his approach to navigating uncertain waters. His focus remains on ensuring that the Fed’s actions are measured and effective in maintaining economic stability without overreacting to short-term fluctuations.
