Fed's Waller Backs December Rate Cut Amid Weakening Job Market
Influential governor's dovish stance highlights growing debate within the central bank as markets weigh conflicting signals on monetary policy.
Federal Reserve Governor Christopher Waller has signaled strong support for an interest rate cut at the central bank's upcoming December meeting, citing concerns over a cooling U.S. labor market. In a speech delivered in London, Waller argued that recent economic data justifies a more accommodative monetary policy stance, a position that has intensified the debate among policymakers and investors alike.
Speaking at the Society of Professional Economists Annual Dinner, Waller made the case for a 25-basis-point reduction, framing it as a prudent "risk management" move. "I am not worried about inflation accelerating or inflation expectations significantly rising, given clear signs of softening demand for workers," he stated, according to the speech transcript released by the Federal Reserve. His remarks represent one of the clearest dovish signals from a key member of the Federal Open Market Committee (FOMC).
The governor's comments come at a pivotal moment for markets, which have been searching for clarity on the Fed's path. Waller's focus on the weakening job market as a primary justification for a rate cut adds a significant voice to the camp of officials more concerned with sustaining economic growth than with fighting the last embers of inflation. He emphasized that an additional rate cut would act as "insurance against a further weakening of the labor market."
However, Waller's dovish perspective is not universally shared within the central bank, and the market's reaction has been cautious. Recent commentary from other Fed officials has struck a more hawkish tone, expressing concerns about the persistence of inflation and warning against premature easing. This divergence of views has contributed to a "risk-off" sentiment in recent trading sessions, with investors shifting away from high-valuation technology stocks and into more defensive sectors like healthcare and energy, as noted in recent market analysis.
The market-implied probability of a December rate cut has fluctuated in response to these conflicting signals. While Waller's comments initially boosted expectations for a cut, the broader sentiment remains uncertain. A recent 43-day U.S. government shutdown has also complicated the picture by delaying the release of crucial economic data, making the Fed's data-dependent approach more challenging.
Waller, however, appeared undeterred by the potential for upcoming data to alter his view. He expressed doubt that the next jobs report would be strong enough to change his assessment that the labor market is softening, a stance that has been reported by multiple outlets. This suggests a high bar for any single piece of data to shift his position ahead of the December meeting.
As the FOMC's final meeting of the year approaches, investors will be closely scrutinizing every piece of economic data and every public statement from Fed officials. The split in opinion, highlighted by Waller's vocal support for a rate cut, suggests that the decision will be hotly debated. The outcome will likely hinge on whether more policymakers come to share Waller's view that the risks of a weakening job market now outweigh the risks of resurgent inflation.