Federal Reserve Governor Calls for Interest Rate Cut
The Federal Reserve, the central bank of the United States, is facing pressure to cut interest rates. Recently, Federal Reserve Governor Christopher Waller spoke out in favor of cutting interest rates in July.
Reasons for Cutting Interest Rates
Waller stated that "the risks to the economy are weighted toward cutting [rates] sooner rather than later." He provided several reasons to support his claim. Firstly, tariffs are one-off increases in the price level and do not cause inflation beyond a temporary surge. According to Waller, standard central banking practice is to "look through" such price-level effects as long as inflation expectations are anchored, which they are.
Economic Indicators
Waller also pointed to several economic indicators that suggest the need for a rate cut. He noted that real gross domestic product (GDP) growth was likely around 1% in the first half of this year and is expected to remain soft for the rest of 2025, much lower than the median of FOMC participants’ estimates of longer-run GDP growth. Additionally, the national unemployment rate is 4.1%, which Waller said was "near the Committee’s longer-run estimate."
Inflation and Labor Market
Headline inflation is close to the Fed’s target at just slightly above 2% if we put aside tariff effects that Waller believes will be temporary. Waller also expressed concern about the labor market, stating that while it looks fine on the surface, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased.
Pressure on the Federal Reserve
The Federal Reserve has been facing mounting pressure from President Donald Trump to lower its target range this year. Trump has been critical of the Fed’s decision not to cut interest rates, even calling Fed Chair Jerome Powell "a knucklehead" for not slashing interest rates. However, Trump said it was "highly unlikely" that he would fire Powell.
Conclusion
In conclusion, Federal Reserve Governor Christopher Waller has made a strong case for cutting interest rates in July. With the economy showing signs of slowing down, and inflation close to the Fed’s target, Waller believes that the risks to the economy are weighted toward cutting rates sooner rather than later. As the Federal Reserve continues to face pressure from the White House, it will be interesting to see how they respond to Waller’s call for a rate cut.
