(Nov 18): Federal Reserve (Fed) governor Christopher Waller repeated his view that the central bank should again lower interest rates when policymakers meet in December, citing a weak labour market and monetary policy that is hurting low- and middle-income consumers.
In a speech titled The Case for Continuing Rate Cuts delivered in London, Waller said another rate cut would represent good “risk management” by the rate-setting Federal Open Market Committee (FOMC). He said he isn’t concerned about inflation accelerating or inflation expectations rising significantly given clear signs of softening demand for workers.
“With underlying inflation close to the FOMC’s target and evidence of a weak labour market, I support cutting the committee’s policy rate by another 25 basis points at our December meeting,” he said in a speech to the Society of Professional Economists Annual Dinner. “My focus is on the labour market, and after months of weakening, it is unlikely that the September jobs report later this week or any other data in the next few weeks would change my view that another cut is in order.”
The September employment report is scheduled to be published on Thursday, after a delay due to the federal government shutdown.
In his speech, Waller highlighted the hit to households from high costs for mortgages and auto loans and noted that a boom in stock prices driven by optimism around artificial intelligence isn’t yet translating into job creation.
While Waller has been a noted dove on the FOMC, breaking from consensus with calls for a rate cut earlier this year, his latest remarks reinforce a deepening split among policymakers between those warning of persistent inflation and others cautioning about risks to employment.
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Fed officials cut their benchmark rate last month by a quarter percentage point for a second straight time, reflecting continued worry over the labour market. But Fed chair Jerome Powell, speaking to reporters after the decision, said another cut in December was “not a forgone conclusion.” Recent hawkish commentary from other Fed officials has pushed down the odds for a December cut to about 40%, from near 100% just before the Fed’s October gathering, according to federal funds futures contracts.
Waller, who was appointed to the Fed’s Board of Governors by Trump in 2020, is among five candidates the White House is considering for the Fed chair position when Powell’s term expires in May.
Fed policymakers next meet on Dec 9-10.
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“A December cut will provide additional insurance against an acceleration in the weakening of the labour market and move policy towards a more neutral setting,” Waller said.
No group-think
In a question-and-answer session after his speech, Waller said the accusation of group-think at the Fed is especially unfair now, given the spirited debate about where policy should be headed.
“On the group-think thing, people who are accusing us of this, get ready. You might see the least group-think you have seen from the FOMC in a long time,” Waller said. “It doesn’t mean anything about the chair’s leadership or disagreements. That’s the whole point of having a committee is to have different points of view.”
He cautioned, however, that close votes on policy can be problematic.
“The only problem is if it gets really down to seven to five for us, and then one person switches the next meeting, and the whole trajectory changes,” he said. “That doesn’t give people confidence what the next vote will necessarily be.”
Waller declined to answer a question on whether President Donald Trump’s pressure for the Fed to lower interest rates helps or hinders the FOMC.
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Earlier on Monday, Fed vice chair Philip Jefferson said risks to the labour market remain skewed to the downside, but he stopped short of saying he would support a rate cut in December.
“I see the balance of risks in the economy as having shifted in recent months with increased downside risks to employment compared to the upside risks to inflation, which have likely declined somewhat recently,” Jefferson said in a speech delivered Monday at the Kansas City Fed.
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