Fed Governor Waller sees 25 bps rate cut in September, followed by more

Federal Reserve Governor Christopher Waller again called for lower interest rates, saying he would support a quarter-percentage point reduction in September and anticipates additional cuts over the next three to six months.“With underlying inflation close to 2%, market-based measures of longer-term inflation expectations firmly anchored, and the chances of an undesirable weakening in the labor market increased, proper risk management means the FOMC should be cutting the policy rate now,” Waller said in remarks prepared for an event Thursday hosted by the Economic Club of Miami.

Waller, whom the Trump administration is considering as a candidate to replace Jerome Powell as Fed chair next year, said he does not currently see the need for an outsized rate cut when the central bank’s policy-setting Federal Open Market Committee next meets September 16-17.

But that could change if a monthly report on employment due next week “points to a substantially weakening economy and inflation remains well contained,” he said. “As I stand here today, I anticipate additional cuts over the next three to six months, and the pace of rate cuts will be driven by the incoming data.”The remarks are the first by a top Fed official in Washington since President Donald Trump moved this week to fire Lisa Cook, another governor on the central bank’s board. The attempted firing escalated Trump’s pressure campaign for lower rates to an unprecedented level, while opening up a historic legal fight that could have lasting ramifications for the central bank’s independence and the US economy.

Waller did not address the Cook matter in his prepared remarks. When asked about it after delivering his speech, he said: “When it comes to this, I really don’t have any comment. Things now are in the hands of lawyers in the courts — not a poor, simple policymaker like me.”

In his speech, Waller instead mostly focused on the labor market, where he said “risks are continuing to build.” At the central bank’s last policy meeting in July, he dissented against a decision to hold rates steady, arguing for a rate cut to bolster employment.

The Fed has kept rates unchanged so far in 2025, largely due to concerns that Trump’s tariffs could stoke inflationary pressures. That on-hold stance has provoked Trump’s ire. The president has repeatedly pressed for lower rates, while insulting Powell and fellow policymakers and scrutinizing the Fed on several fronts.

But lackluster employment figures released after the July meeting have prompted greater concern, and Powell said last week a cut could be warranted, citing a “shifting balance of risks.”

Waller reiterated his argument that the Fed should “look through” the effect of tariffs on inflation, which he said he expects will prove temporary.

“I am back on ‘Team Transitory,’” he said after the speech, nodding to the debate over inflation during the pandemic.