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Christopher Waller, a member of the Fed’s governing board and a possible contender to become the next chair after Jerome Powell, has called for a July rate cut. He joins the growing list of Fed officials batting for a rate cut even as Powell has preferred to play it safe and has held rates steady this year.
Speaking at an event hosted by Money Marketeers of New York University earlier this week, 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.”
Waller called for a return to “neutral” policy and added, “The economy is still growing, but its momentum has slowed significantly.”
Top Fed Official Bats for Rate Cut
While Powell has cited tariff uncertainty as the key reason for not cutting rates, Waller believes that while they are inflationary, they are a “one-off increases in the price level and do not cause inflation beyond a temporary surge.”
He pointed to the softness in the US economy, which grew by only 1% in the first half of the year, to make a case for rate cuts. Thirdly, he said, “that while the labor market looks fine on the surface, once we account for expected data revisions, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased.”
Wallen had batted for a rate cut last month, even as the Fed rates remained unchanged as widely expected.
Some Other Officials Also Back a July Rate Cut
Federal Reserve Vice Chair for Supervision Michelle Bowman has backed a rate cut as early as July. “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market,” she said last month in her prepared remarks delivered in Prague.
Bowman also noted that the inflationary impact of tariffs imposed by President Donald Trump has been weaker and more delayed than initially feared. She believes that if inflation continues to be subdued, lowering the policy rate would help bring it closer to its neutral setting and sustain a healthy labor market. “All considered, ongoing progress on trade and tariff negotiations has led to an economic environment that is now demonstrably less risky,” said Bowman, who is also a Trump appointee.
Meanwhile, Chicago Fed President Austan Goolsbee and a former advisor to Barack Obama have also backed cutting rates, saying, “if we do not see inflation resulting from these tariff increases. Then, in my mind, we never left what I was calling the golden path before April 2.” As investors would recall, President Trump announced his “reciprocal tariffs” on April 2, terming it the “Liberation Day.”
Trump Has Been Quite Critical of Powell
President Donald Trump has been quite critical of Powell and has called for rates to be slashed to 1% which would help lower the borrowing costs. Notably, interest payments are now the second biggest constituent of Federal expenditure, and the US government is expected to pay over $1.2 trillion as interest on its national debt, which has surpassed $36 trillion.
Notably, while Trump appointed Powell as the Fed chair, the relations between the two were quite fraught as Powell raised rates during Trump’s presidency, much to his displeasure. In a 2019 tweet, Trump questioned whether Powell or Chinese President Xi Jinping was “our bigger enemy.”
In 2022, Joe Biden reappointed Powell as the Fed chair for four years, and his current tenure would last until mid-2026. Last year, Powell indicated that he would serve his entire tenure while saying that U.S. presidents are “not permitted under the law” to fire members of the Fed.
What’s Powell’s Argument for Not Cutting Rates?
Notably, while US inflation has gradually come down over the last two years, it is still higher than the 2% that the Fed targets. Fed chair Jerome Powell sees upward pressure on inflation amid President Trump’s tariffs. While Trump has lowered the “reciprocal tariffs” on most countries to 10%, there is uncertainty over the future trajectory of these rates, as they are contingent upon trade agreements.
In his speech following last month’s FOMC meeting, Fed chair Jerome Powell said, “Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs because someone has to pay for the tariffs.” He added, “It will be someone in that chain that I mentioned, between the manufacturer, the exporter, the importer, the retailer, ultimately somebody putting it into a good of some kind or just the consumer buying it.”
Powell cautioned that the cost of tariffs, at least in part, will have to be paid by the US consumers. He said, “All through that chain, people will be trying not to be the ones who can take up the cost, but ultimately, the cost of the tariff has to be paid. And some of it will fall on the end consumer.”
Fed Has Played the ‘Wait and Watch Game’
Powell, meanwhile, reiterated that the Fed is ready to play a “wait and watch” game on future rate cuts. He dashed the possibility of rate cuts in the near term, saying, “The economy seems to be in solid shape, so the labor market is not crying out for a rate cut.”
The Fed chair echoed similar views in his testimony before the House Financial Services Committee and said, “For the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
He added, “The FOMC’s obligation is to keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem.”
Markets, meanwhile, don’t expect the Fed to cut rates this month, and the CME FedWatch tool shows 95.9% traders see no rate cut at the July meeting.
