Fed’s Waller Calls for Quarter-Point Rate Cut at October Meeting

Christopher Waller, governor of the Federal Reserve. (Samuel Corum/Bloomberg)

Key Points

• Federal Reserve Governor Christopher Waller advocated for a quarter percentage point interest rate cut in October due to labor market weakness.
• The unemployment rate increased to 4.3% in August from 4.1% in June, with job growth concentrated in healthcare.
• Waller noted a conflict between a weakening jobs market and continued economic growth, with delayed data due to a government shutdown.

Federal Reserve Gov. Christopher Waller said Thursday the central bank should lower interest rates by a quarter percentage point at its October meeting, citing continued weakness in the labor market.

“If the labor market continues to soften or even weaken and inflation remains in check, then I believe the FOMC should proceed to reduce the policy rate toward a neutral level,” Waller said in remarks at the Council on Foreign Relations in New York. “The labor market has been sending some clear warnings lately, and we should be ready to act if those warnings are validated by what we learn in the coming weeks and months.”

The unemployment rate rose to 4.3% in August from 4.1% in June, and nearly all net job growth this year has come from healthcare and social assistance. Employment in nearly every other sector is either flat or down.

The Fed’s current target range stands at 4% to 4.25%. Waller estimated the neutral rate—the level at which interest rates neither stimulate nor restrict growth—sits about one to 1.25 percentage points below that target.

Markets overwhelmingly expect a quarter-point rate cut at the Fed’s Oct. 28-29 meeting, with nearly 97% of investors pricing in that move, according to the CME FedWatch tool.

The Fed governor also discussed a growing conflict between a weakening jobs market and continued economic growth.

“Something’s gotta give—either economic growth softens to match a soft labor market, or the labor market rebounds to match stronger economic growth,” he said.

The tension between growth and labor remains clear, even without official economic data. The government shutdown that began Oct. 1 has delayed the release of September’s employment report, retail sales figures, and consumer and producer price data—all critical indicators the Fed uses to guide policy decisions.

“To deal with this lack of public data, I spend a lot of my time talking to business contacts, whose views help me form my outlook for the economy,” Waller said. “So far that input tends to support—rather than resolve—the contrast we have seen between strong economic activity and a softening labor market.”

Those conversations suggest further softening in hiring last month, while retailers report solid consumer spending, though lower-income households are showing more caution, he said.

Waller’s comments come as speculation builds about Fed leadership. Earlier this week, he told CNBC he had interviewed with Treasury Secretary Scott Bessent for the Fed chair position and believed the conversation went well. Waller is considered a leading candidate to replace Chair Jerome Powell when his term expires in May 2026.

Meanwhile, Federal Reserve Gov. Stephen Miran struck a less cautious tone on Thursday. Speaking at the Institute of International Finance Annual Membership Meeting, Miran—a top economic advisor to President Donald Trump and his most recent Fed appointee—called for two additional half-point rate cuts this year, a far more aggressive stance than Waller’s.

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