Is the Fed about to make a big move? Governor Christopher Waller is pushing for immediate rate cuts, arguing against waiting for a weakening job market, despite a strong economy. With underlying inflation near target, could this signal a major shift in monetary policy? What’s your take on the future of interest rates?
Federal Reserve Board Governor Christopher Waller has ignited a crucial debate within economic circles, advocating for a series of immediate rate cuts over the next six months. His proactive stance underscores a significant shift in thinking, signaling a desire to preempt potential economic downturns rather than react to them, a move that could redefine the trajectory of monetary policy in the near future.
Speaking at the Economic Club of Miami, Waller articulated his expectation for additional cuts, emphasizing that the pace would be dictated by incoming data. Crucially, he maintained that the Federal Reserve’s policy has not fallen “substantially behind the curve,” but stressed the importance of signaling future actions to prevent such a scenario. This forward-looking approach highlights a strategic pivot in central bank communication.
The financial markets are already reflecting these anticipations. The CME FedWatch Tool, a barometer of futures traders’ expectations, currently places the probability of a 25-basis-point cut at a commanding 86.2%. This widespread market belief in impending reductions suggests a collective understanding of the economic signals that Waller and other policymakers are interpreting.
Waller’s arguments are set against a backdrop of complex economic indicators. While advance GDP data recently revealed a stronger-than-expected 3.3% rebound in the U.S. economy for the second quarter, primarily boosted by declining imports, the Governor emphasized the increasing downside risks to the labor market. He reiterated his July argument that the FOMC should not wait for a significant deterioration in employment before implementing rate cuts.
On the inflation front, Waller provided a reassuring perspective. He noted that Fed forecasters have accounted for the impacts of tariffs on prices, concluding that underlying inflation remains consistently close to the Federal Reserve’s 2% target. He further projected that while 12-month inflation might see a slow increase for a few more months due to tariff effects, these would dissipate by early 2026, advocating that monetary policy should disregard these transient tariff-induced price fluctuations.
Christopher Waller underscored the immediate need for a policy rate reduction. Citing stable underlying inflation, firmly anchored market-based measures of longer-term inflation expectations, and heightened risks to the labor market, he asserted that “proper risk management means the FOMC should be cutting the policy rate now.” This direct call for action reveals a sense of urgency within a segment of the central bank.
This period of monetary policy adjustment coincides with intense political pressure on the central bank and Chair Jerome Powell to lower interest rates. Challenges to the Federal Reserve’s independence are becoming more pronounced, adding another layer of complexity to its decision-making process. The broader economic outlook is thus shaped not only by data but also by external political forces.
Beyond institutional analysis, retail sentiment offers another perspective on the economic outlook. On Stocktwits, sentiment toward the SPY ETF remained ‘bullish’ by late Thursday, although message volume dropped. Conversely, sentiment for the QQQ ETF remained ‘bearish’ with reduced message volume, indicating a mixed retail investor outlook amidst the evolving interest rates debate.
