Fed Gov. Waller Makes the Case for Cutting Interest Rates in 2 Weeks

Christopher Waller, governor of the Federal Reserve, during a 2024 Fed Listens event in Washington, D.C. (Al Drago/Bloomberg)

Federal Reserve Gov. Christopher Waller on Thursday called for the central bank to cut interest rates at its July meeting, breaking ranks with Chair Jerome Powell and staking out the most forceful case yet for easing policy this summer.

“I believe it makes sense to cut the [Fed’s] policy rate by 25 basis points two weeks from now,” Waller began his speech to the Money Marketeers of New York University. “The risks to the economy are weighted toward cutting sooner rather than later.”

The speech comes as President Donald Trump intensifies pressure on the Fed to lower borrowing costs. Trump has repeatedly attacked Powell and has floated firing and replacing him before his term ends in May 2026. Waller, a Trump appointee, is considered a top contender for the job in part because of his dovish stance on interest rates.

Waller has said in the past that his push for rate cuts is based on data, not politics. “I’ve tried to lay out very clearly, in economic terms, why we could do this. It’s not political,” he said in a speech earlier this month.

Still, his stance marks a departure from the majority of Fed officials, including Powell, who have adopted a cautious approach toward rate cuts in recent months, citing economic uncertainty and tariff-related inflation.

Investors are pricing in a mere 2.6% chance that the Fed cuts rates at its July 29-30 meeting, according to the CME FedWatch tool.

Thursday’s speech is Waller’s most forceful argument to date for an immediate rate cut. Inflation, he said, is close to target. Economic growth has slowed, and job gains are overstated.

“Private-sector payroll gains are near stall speed and flashing red,” Waller said. “With inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate.”

The Fed’s current policy rate—between 4.25% and 4.50%—is too high given the underlying economic fundamentals, Waller argued. “The data imply the policy rate should be around neutral…and not where we are—1.25 to 1.50 percentage points above 3%,” he said.

Waller also dismissed concerns that the Fed should wait to see how tariffs affect prices. “Tariffs are one-off increases in the price level and do not cause inflation beyond a temporary surge,” he said. “Standard central banking practice is to ‘look through’ such price-level effects as long as inflation expectations are anchored, which they are.”

The Fed has just four meetings left this year. Waiting until September to lower rates, Waller argued, would put the Fed at risk of “falling behind the curve,” especially if the slowing of economic and employment growth were to accelerate.

“If we cut our target range in July and subsequent employment and inflation data point toward fewer cuts, we would have the option of holding policy steady for one or more meetings,” he said.

Write to Nicole Goodkind at nicole.goodkind@barrons.com.