Federal Reserve Governor Christopher Waller maintains his dovish stance, explaining why he dissented in favor of a 25 bps cut at the latest policy meeting. Waller’s stance underscores a growing concern that the central bank’s current restrictive policy is stifling economic activity despite superficially solid growth figures.
Waller’s primary concern lies in a unhealty labor market. While headline economic growth remains steady, he argues that underlying demand is weakening. He warned that the market should prepare for significant downward revisions to last year’s data, suggesting that "payroll growth in 2025 was virtually unchanged".
Looking ahead, Waller sees more weakness for 2026 due to reports of multiple planned workforce reductions. He is skeptic regarding the potential for new job creation and sees a "significant risk" of a substantial deterioration in employment conditions.
Waller judges the current federal funds rate range of 3.50–3.75% is far too restrictive. To prevent weakness, he advocates for a quick shift toward a neutral policy, positioning the target rate closer to 3%.
Addressing the recent uptick in prices, Waller noted that while tariffs have elevated headline inflation, the underlying trend remains positive. He says that inflation excluding tariff effects is already near the Fed's 2% target and because long-term inflation expectations remain stable, Waller argues that monetary policy should "look through" the temporary noise of trade-related price hikes and focus on the cooling labor market.
Full speech here
