Fed Governor Makes Case For Cutting Interest Rates Now

Forbes

7 days ago

Christopher Waller, Member of the Federal Reserve Board of Governors of the United States, arrives ... More for the morning session at 2025 European Central Bank Forum on Central Banking in Penha Longa Resort on July 01, 2025 in Sintra, Portugal. The European Central Bank hosts its annual Forum on Central Banking from June 30 to July 02. This year the Forum deals with "Adapting to change: macroeconomic shifts and policy responses." (Photo by Horacio Villalobos#Corbis/Getty Images)
In a July 17 speech Fed Governor Christopher Waller has made the case for lower interest rates based on emerging risks to the job market and a willingness to look through any tariff-related inflation. It is somewhat unusual for a voting member to take such an explicit public position with an interest rate decision approaching on July 30.
A Dissent May Be Coming In July
If this position is not embraced by the Federal Open Market Committee, then this gives a strong signal of a dissent from Waller. This means that Waller may vote to cut interest rates on July 30 even if the majority decision is to hold the Federal Funds rate steady at 4.25% to 4.5%.
Fixed income markets currently project only a 5% chance that the FOMC does cut rates in July and the FOMC seldom surprises markets in the near term. This means Waller's view may prove an outlier, even though the FOMC's own projections imply cuts are coming in 2025, but probably at later meetings.
A Direct Speech
Waller's speech was direct because it is more common for FOMC policymakers to discuss other topics in speeches and reference monetary policy perspectives briefly at the opening or closing of their speeches.
Expressed views are often more abstract or medium-term in nature rather than calling for a specific policy action in 2 weeks. Waller's July 17 speech was very directly titled, 'The Case for Cutting Now', with an unambiguous opening statement, 'My purpose this evening is to explain why I believe that the Federal Open Market Committee (FOMC) should reduce our policy rate by 25 basis points at our next meeting'.
Risks To Jobs
Waller made the case for lower rates in his speech. He argued, "private-sector payroll gains are near stall speed and flashing red.' His main observation that was in contrast to most recent statements from FOMC members, was that the labor market is softer than it may appear, based on weak private sector job gains and the potential for negative revisions to recent reports.
Waller agreed that recent headline unemployment data for June was 'reassuring' but went on to say, "Looking a little deeper, I see reasons to be concerned. Half of the payroll gain came from state and local government, a sector of employment that is notoriously difficult to seasonally adjust this time of year. In contrast, private payroll employment grew just 74,000, a much smaller gain than in the previous two months.'
Waller then continued, 'A pattern in data revisions in recent years tells us that the private payroll data are being overestimated and will be revised down significantly when the benchmark revision occurs in early 2026."
In addition, Waller is willing to look through any inflationary impact of tariffs, saying, 'policy should look through tariff effects and focus on underlying inflation'.
This, for now, is perhaps a different perspective to those recently expressed by other FOMC policymakers including Powell. Other FOMC policymakers have argued that there is relatively elevated economic uncertainty currently and that policymakers might be best positioned to wait for further data on inflation and jobs before adjusting rates given slightly elevated inflation and a robust jobs market. However, the consensus is that economic undertainty may be receding and that rates will likely move slightly lower later in 2025, just likely not at the July meeting.
Trump's Calls For Lower Rates
Of course, perhaps not coincidentally, this comes at a time when President Trump and others in his administration have been unrelenting and very public in criticizing Federal Reserve Chair Jerome Powell for not cutting interest rates.
The Fed's Mandate
However, Trump's criticism is largely at cross-purposes with the Fed's mandate. Trump wants to see lower interest rates on government debt, as a way to cut expenses. Although, the FOMC only controls a certain short-term interest rates, not the total cost of government borrowing, which is determined by a host of factors including market forces.
In contrast, the Fed's stated mandate is to control inflation and promote employment. Generally, that's why many central banks are independent from politicians, politicians generally prefer lower interest rates for short-term benefits, regardless of whether it is appropriate for the economy over the longer term. Trump is expected to nominate a new Fed Chair for 2026 within months, and Waller is currently viewed as a clear candidate for that position, though not among the front runners on recent assessments.
What To Expect
If it doesn't sway the broader FOMC, as seems unlikely in the absence of further supporting economic data, then it appears likely that Waller, and maybe others, will dissent in calling for lower rates at the FOMC's July 30 decision as rates are held steady. However, this may provide further evidence that an interest rate cut is coming in September, something which the markets assess as probable currently.