Fed’s Waller doubles down on rate cut expectations

Federal Reserve Governor Christopher Waller has reaffirmed his support for a rate cut at the Fed’s December meeting, citing softening labor markets and easing inflation trends as key factors.

In an interview, Waller said, “The biggest concern we have right now is the labor market,” he told Larry Kudlow on Fox Business Network. “We know inflation is going to come back down, so this is why I’m still advocating that we cut policy rates in December, because that’s what all the data is telling me to do.”

A group of Federal Reserve bank presidents shared their concerns on Friday, October 31, regarding the US central bank’s decision to reduce interest rates this week.

Sources pointed out that the situation illustrates disagreement among Fed policymakers, creating difficulties for their chair, Jerome Powell. This is because he is required to find common ground during his final six months in the position.

Fed’s disagreement on rate cuts sparks controversy 

Following the disagreement among Fed policymakers, analysts noted that it is common to have conflicting views on policy, especially when economic data are unclear. However, they argued that the Fed’s move to openly discuss their disagreements and clearly focus on what they should decide at their next meeting, scheduled for December 9-10, was significant.

In the meantime, during a banking conference, Lorie Logan, the president and CEO of the Federal Reserve Bank of Dallas, mentioned that she did not see a reason to lower rates this week. Based on her argument, supporting another rate cut will be difficult unless there is clear evidence that inflation will drop faster than expected or the job market will decelerate sharply.

The president and CEO of the Federal Reserve Bank of Cleveland, Beth Hammack, also weighed in on the situation. At the same conference, Hammack mentioned, “Considering our recent decision, I think we are close to my idea of neutrality: we’re only slightly restrictive if at all.” 

Although she did not participate in this year’s vote on policy, like Logan, the CEO disagreed with the rate cut this week, and both will have the right to vote next year. Hammack expressed her belief that they need to maintain some level of restriction to help bring inflation back down to their target.

On the other hand, Waller, who has a permanent vote and is one of the candidates that US President Donald Trump could choose for Fed chair when Powell’s term ends in May, expressed a very different perspective. According to him, the country’s main current challenge is the job market. 

Interestingly, both Waller and Logan suggested that Trump’s tariffs are unlikely to lead to a surge in inflation. However, while Waller believes that this backs the idea of rate cuts, Logan expressed her concerns about the increasing costs of services.

They also agreed that the absence of official economic data during the government shutdown does not cause the uncertainty Powell talked about earlier this week as a reason to hold off on rate cuts.

Waller stresses the importance of further rate cuts

Logan mentioned that private-sector figures, state-level unemployment entitlements, and the Fed’s own business and societal surveys give visibility into the state of the economy.

She believed these elements support her argument that the job market is not slowing down enough to necessitate the Fed’s intervention, especially because inflation continues to be too high and is taking too long to hit the Fed’s 2% target.

“The fog story has to end: it may imply that you need to take it easy, but it doesn’t mean you should stop completely,” Waller said. According to him, it is advisable to exercise caution due to economic uncertainties, but this situation should not prompt policymakers to halt rate cuts; instead, he urges that the best way to handle policy is to continue making cuts.

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