Governor Christopher J. Waller expressed his disagreement with the Federal Open Market Committee’s (FOMC) stance at their recent meeting, where they decided not to cut the policy rate despite his strong argument for doing so.
Waller believes that tariffs are a one-off price increase and do not cause long-term inflation. He also cites data showing that monetary policy should be near neutral, rather than restrictive. The real GDP growth was 1.2% in the first half of the year, lower than expected, but still close to the FOMC’s longer-run estimate. Additionally, the unemployment rate is near the Committee’s estimate at 4.1%, and total inflation is around 2% if we exclude tariff effects.
However, Waller warns that the labor market may be nearing stall speed despite a strong surface-level performance. He argues that private-sector payroll growth is slowing down, and there are increasing downside risks to the labor market. Given the low upside risks to inflation, Waller believes it’s necessary to act now rather than wait for the labor market to deteriorate.
Waller acknowledges that some of his colleagues believe a “wait and see” approach regarding tariffs’ effects on inflation is prudent, but he disagrees, arguing that this approach may lead to policy falling behind the curve. He thinks that waiting may unduly delay moving towards more effective policy if there’s a risk that labor markets will falter before clarity on tariff levels is obtained.
In summary, Governor Waller advocates for cutting the policy rate now and allowing it to evolve with data. This would enable the Committee to adjust its policy accordingly, whether reducing or pausing the rate reduction, depending on future developments in inflation and employment.
Source: https://www.federalreserve.gov/newsevents/speech/waller20250801a.htm