Fed’s Waller Urges Patience on Rate Cuts Amid Economic Uncertainty
Federal Reserve Governor Christopher Waller signaled a more cautious approach to monetary policy on Friday, indicating that while he still sees a path to interest rate reductions later in the year, recent economic and geopolitical developments warrant close observation. His comments, made during a CNBC interview on “Squawk Box,” mark a shift from his earlier, more dovish stance and reflect the complex calculus facing policymakers.
Weighing Labor Market Signals and Geopolitical Risks
Waller, who had previously advocated for easing monetary policy, cited two primary factors for his current wait-and-see attitude: evolving labor market data and the economic uncertainty stemming from the conflict with Iran. “It doesn’t mean that I’m going to stay put for the rest of the year,” Waller stated. “I just want to wait and see where this goes, and if things go reasonably well and the labor market continues to be weak, I would start advocating again for cutting the policy rate later this year.”
His caution follows a period where markets had broadly anticipated multiple rate cuts in 2025. However, expectations have shifted dramatically. As noted in the report, traders have effectively priced out the possibility of reductions through the end of 2026 and into 2027, a stark reversal from pre-war forecasts of two or three cuts this year. This repricing is directly linked to soaring oil prices and the indeterminate duration of the geopolitical conflict, elements that introduce potential inflationary pressures and economic volatility.
Parsing the Labor Market: Beyond “Net Zero”
The labor market’s health remains a central pillar of the Fed’s decision-making. Waller dissected the recent data, acknowledging that February’s report showed a drop of 92,000 nonfarm payrolls. While he noted that the labor force is not expanding—meaning this decline does not immediately translate to a rising unemployment rate—he warned against complacency. “If we get another 90,000 jobs decline in the next jobs report, that’ll be like four negative reports out of five. To me, that’s not zero,” he explained. “So at that point, you need to start thinking about this labor market isn’t good.”
This nuanced view highlights the Fed’s focus on the trend and momentum of employment, not just static levels. A sustained weakening could revive calls for rate cuts to stimulate activity, even as other factors like inflation complicate the picture.
The Inflation Outlook and Tariff Effects
On inflation, Waller expressed a relatively sanguine view, believing the trajectory remains toward the Fed’s 2% target. However, he identified a key risk: tariffs. He framed the challenge as a potential “tricky business” if one-off tariff-induced price increases persist into the second half of the year. “If those tariff effects don’t roll off by the second half of the year, and then inflation starts rising then, then you’re in this tricky business of like, do we worry about inflation? Take a chance on recession or not?” he said. His dual focus will be on both labor market deterioration and any stubborn inflation signals before advocating for cuts.
A Divergent View Within the Fed
Waller’s current caution contrasts with the view of fellow Trump-nominated Governor Michelle Bowman. In a separate Fox Business interview, Bowman stated her belief that the Fed can cut rates three times in 2025, potentially pushing the federal funds rate below the neutral level estimated by the Federal Open Market Committee (FOMC). This position makes her part of a small minority; according to the latest update of the Fed’s “dot plot”—the anonymous grid of individual policymakers’ rate projections released on Wednesday—only three of the 19 participating officials see such aggressive easing, even as Bowman anticipates “strong growth” supported by administration policies.
This internal divergence underscores the lack of consensus within the central bank. Waller’s alignment with the majority for another pause at this week’s FOMC meeting, after having dissented in January, further illustrates the fluid nature of the debate as new data and events unfold.
Governor Waller’s remarks encapsulate the Federal Reserve’s delicate balancing act. The path forward depends heavily on whether labor market weakness becomes a confirmed trend and if inflationary pressures from tariffs and geopolitical events prove transitory. His message is clear: the opportunity for rate cuts remains, but it is contingent on data that has yet to materialize in a convincing pattern. For now, patience is the prescribed policy.
Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.
