Fed Gov. Waller urges caution for now; cuts possible later in the year
Federal Reserve Governor Christopher Waller expressed caution on Friday about current economic conditions but still sees an opportunity for a rate cut later this year.
Waller, who has previously advocated interest rate cuts, said in an interview with CNBC that recent developments in the labor market as well as uncertainty in the war with Iran require a more conservative approach.
“This doesn’t mean I’m going to be here for the rest of the year,” Waller said on “Squawk Box.” “I want to wait and see where this goes, and if things go reasonably well and the labor market continues to be weak, I will begin to advocate for lowering the policy rate again later this year.”
Markets have all but eliminated the possibility of a rate cut through the balance of 2026 and into 2027. That’s a shift from prewar expectations, when traders expected two or three interest rate cuts this year.
But rising oil prices and uncertainty about how long the war will last have changed market expectations and caused Waller and other policymakers to rethink. Waller opposed the Federal Open Market Committee’s decision not to cut cuts in January, but decided to impose a new pause with the majority earlier this week.
The previous dovish stance was clearly due to a weakening labor market that produced almost no net employment growth in 2025. But he noted Friday that the labor force is not expanding either, so “net zero” growth still leaves the unemployment rate unchanged, despite a 92,000 drop in nonfarm payrolls in February.
“If we get another 90,000 job decline in the next jobs report, four out of five of those reports will be negative. To me, that’s not zero. So at this point you have to start thinking the labor market is not good,” Waller said. “I don’t think this war will help anything going forward, but we’ll have to see what happens with inflation.”
Waller is generally optimistic about inflation at the moment; He thinks that inflation increased due to one-time effects from tariffs, but other than that, it is structurally moving towards the Fed’s 2% target.
“If these tariff effects don’t go away by the second half of the year, and then inflation starts to rise, then you’re in for a tricky business like: Do we worry about inflation? Do we risk a recession or not?” he said. “So I’ll be really paying attention to what future labor markets look like to see if I want to start advocating for rate cuts in future meetings, but I also want to see what happens to inflation.”
Earlier Friday, Fed Governor Michelle Bowman, who like Waller was nominated for the post by President Donald Trump, said she believed the Fed could cut three times this year. This would push the benchmark federal funds rate below the neutral level that FOMC officials think neither supports nor constrains growth.
Bowman took that position even though he said in an interview on Fox Business that he expected “strong growth” this year “supported by the supply-side policies the administration has put in place.”
Bowman is one of three Fed officials who have seen aggressive rate cuts this year, according to the Fed’s “dot plot” update released Wednesday. A total of 19 policymakers participate in the network.
