Fed governor Waller advocates for July rate cut amid tariff, labor market outlook

On Friday, Federal Reserve Governor Christopher Waller indicated that he anticipates tariffs will not substantially increase inflation.

Therefore, he believes policymakers should consider reducing interest rates as soon as next month.

In a CNBC interview, the central banker said he and his colleagues should begin gradually easing monetary policy, noting that inflation is not currently—and is unlikely to become—a significant threat to the economy.

Rate cut probability in July

“I think we’re in the position that we could do this as early as July,” Waller said during the interview. 

Two days prior, the Federal Open Market Committee opted to maintain its key interest rate, marking the fourth consecutive hold since the last reduction in December.

During his first term in office, US President Donald Trump appointed Waller as a governor. 

Trump has consistently exerted pressure on the Federal Reserve to decrease interest rates. 

His rationale for this push is to alleviate the borrowing costs associated with the substantial national debt, which currently stands at $36 trillion.

This ongoing pressure reflects a broader economic strategy aimed at stimulating growth and reducing the financial burden on the government.

Labour market concern

Waller believes the Fed should implement cuts to preempt a potential deceleration in the labor market.

“If you’re starting to worry about the downside risk [to the] labor market, move now, don’t wait,” he said. 

Gains were observed in stock market futures following Waller’s remarks.

It remains uncertain if Waller can garner significant support for his stance.

At this week's meeting, the FOMC, with Waller's vote, decided to maintain the benchmark federal funds rate within its target range of 4.25%-4.5%.

Policymakers are uncertain about the future direction of interest rates, as evidenced by the "dot plot" of individual officials' expectations. 

While the median outlook suggests two rate cuts this year, the dispersion of views is notable.

Seven of the 19 meeting participants anticipate rates remaining steady, two foresee only one cut, and the remaining ten expect two or three reductions.

A cautious approach is likely by the Fed

During remarks made on Wednesday before the Fed meeting, Trump called Fed Chair Jerome Powell “stupid” for not pushing to cut, advocating for significant changes. 

He believes the benchmark rate should be at least 2 percentage points lower, and even suggested it should be 2.5 percentage points below the current level of 4.33%.

Waller, a potential successor to Powell—whose term as chair concludes in May 2026—advocated for a cautious approach by the committee. Meanwhile, Trump has indicated an imminent announcement regarding his intentions.

“You’d want to start slow and bring them down, just to make sure that there’s no big surprises. But start the process. That’s the key thing,” Waller said. 

Apprehensions

Other officials have been hesitant to implement cuts, preferring to observe the long-term effects of Trump's tariffs on inflation, the labor market, and overall economic growth.

“We’ve been on pause for six months, thinking that there was going to be a big tariff shock to inflation. We haven’t seen it. We follow the data,” Waller said. 

At his post-meeting news conference on Wednesday, Powell reiterated his belief that the Fed can maintain its wait-and-see approach as the labor market remains strong. 

Recent inflation data indicates minimal pass-through, as companies deplete inventory accumulated before the tariff announcement, amidst concerns of slowing consumer demand and reduced pricing power.

According to the CME Group’s FedWatch measure, the futures market pricing suggests almost no possibility of a rate cut at the July 29-30 meeting. Instead, the next rate adjustment is anticipated in September.