Fed's Waller dissents as weak labor market spurs rate cut call
Governor cites near-zero job growth and layoff risks in push for 25bp reduction
Federal Reserve Governor Christopher Waller dissented from the central bank's decision to hold interest rates steady this week, arguing that anemic employment growth demands immediate monetary easing. The move marks the first significant public fracture within the Federal Open Market Committee since it began cutting rates late last year.
The FOMC maintained the federal funds rate at a target range of 3.5% to 3.75%, pausing after three consecutive rate reductions in late 2025. But Waller, joined by Governor Stephen Miran, pushed for an immediate 25-basis-point cut, citing what he described as a rapidly deteriorating labor market.
"Virtually no growth in payroll employment" characterizes the current economic landscape, Waller said in his dissent statement. The governor noted that the US economy added only about 600,000 jobs in 2025—less than one-third of the ten-year average of roughly 1.9 million annually. He anticipates that upcoming data revisions could show even weaker performance.
The unemployment rate has climbed since mid-2025, and Waller warned of more trouble ahead. He has received reports from businesses indicating "planned layoffs in 2026," signaling what he called "considerable weakness in labor demand." The dissent reflects Waller's view that the current policy rate remains 50 to 75 basis points above what the Fed estimates as the neutral rate of roughly 3%.
Despite tariff-driven inflation that remains elevated, Waller argued that underlying price pressures are nearing the Fed's 2% target on a sustainable path. With labor markets weakening and inflation trending toward goal, he said the policy rate should move closer to neutral to prevent "a more difficult-to-address deterioration."
The official FOMC statement painted a somewhat rosier picture of employment conditions, noting that "job gains have remained low, and the unemployment rate has shown some signs of stabilization." The committee removed previous language about "downside risks to employment" from its policy declaration, suggesting growing confidence that the labor market is stabilizing rather than deteriorating.
Chair Jerome Powell acknowledged an improved growth outlook and reduced downside risks to employment during his press conference, though he cautioned against overstating the stabilization. The more optimistic assessment from the majority of policymakers tempered market expectations for near-term rate cuts, with some analysts suggesting the next reduction may not be fully priced in until July.
Financial markets showed a muted response to what analysts described as a "hawkish hold." The S&P 500 briefly touched a record high of 7,000 before settling little changed, while the Nasdaq posted a slight gain and the Dow Jones Industrial Average finished fractionally higher. The US Dollar Index, which had been trending lower on earlier rate cut expectations, rebounded following the announcement.
Despite the January pause, major investment banks still anticipate additional easing in 2026, with forecasts for cumulative cuts of 50 to 100 basis points over the remainder of the year. The divergence between Waller's concerns about labor market fragility and the majority's more measured assessment sets up a potential pivot point in monetary policy as the economic data unfold in coming months.