Federal Reserve Governor’s Call for Interest Rate Cuts

Federal Reserve Governor Christopher Waller stated that “the time has come” for the U.S. central bank to initiate a series of interest rate cuts this month. He expressed willingness regarding the size and pace of these reductions.

Waller noted, “If the data supports cuts at consecutive meetings, then I believe it will be appropriate to cut at consecutive meetings,” during remarks at the University of Notre Dame. He emphasized that if data indicates larger cuts are necessary, he will support that too. Having advocated for aggressive rate hikes when inflation surged in 2022, he is now in favor of preemptively cutting rates, if deemed appropriate.

The Federal Reserve is expected to lower its policy rate, currently at 5.25%-5.50%, during its September 17-18 meeting. This expectation follows comments from Fed Chair Jerome Powell, who indicated that easing policy is timely due to improvements in inflation and changes in the labor market.

Waller reiterated Powell’s sentiment but with more urgency, suggesting a potential half-percentage-point reduction. Recent data shows that the average monthly job gain has fallen to 116,000, which is below the level needed to support a growing population. This, together with other data, suggests a moderation in the labor market.

Despite signs of softening in the labor market, Waller noted the economy is not heading towards recession. He remarked, “The current batch of data no longer requires patience; it requires action,” as Fed policy shifts focus from combating inflation to maintaining full employment.

He also pointed out progress in reducing inflation. Wage growth has decelerated in alignment with the Fed’s goal of 2% inflation. Waller stated that inflation trends are moving in the desired direction, with underlying inflation measured at 2.6% on a six-month average and 1.7% on a three-month average.

Waller concluded by stating that while rate cuts would be approached judiciously, he is prepared to act quickly to support the economy as necessary, as long as inflation remains stable and the economy and employment progress.