Federal Reserve Governor Calls for Interest Rate Cut
The Federal Reserve should slash interest rates by the next Federal Open Market Committee (FOMC) meeting, scheduled for July 29th, according to Fed Governor Christopher Waller. In a recent speech at New York University, Waller provided three main reasons why the Fed Funds Rate should be reduced by 25 basis points (bps) immediately.
Reasons for the Rate Cut
Waller addressed tariffs, labor markets, and a "host of data" that suggests GDP will continue to be low. He believes tariffs are not as inflationary as most people think and will likely only lead to a "one-off" surge in prices rather than a sustained climb in inflationary pressures. Waller also stated that a rate cut now, rather than months down the road, would front-run an otherwise cooling economic climate in the US.
Economic Growth and Inflation
Waller said, "I also believe – and I hope the case I have made is convincing – that the risks to the economy are weighted toward cutting sooner rather than later. If the slowing of economic and employment growth were to accelerate and warrant moving toward a more neutral setting more quickly, then waiting until September or even later in the year would risk us falling behind the curve of appropriate policy." He also noted that if the Fed cuts the target range in July and subsequent employment and inflation data point toward fewer cuts, they would have the option of holding policy steady for one or more meetings.
GDP Growth Forecast
Waller expects an annual GDP growth of around 1%, which would be down from 2024’s 2.4%. He stated, "Given the ups and downs of monthly indicators of GDP this year, we can best get a view of the performance of the economy by combining the first and second-quarter numbers. With the data in hand, estimates suggest that real GDP increased at an annual rate of about 1 percent in the first half of this year, compared with 2.8 percent in the second half of 2024." Waller does not expect a rebound in the second half of 2025, and most forecasts suggest that real GDP growth will remain around 1 percent at an annual rate.
Conclusion
In conclusion, Fed Governor Christopher Waller believes that the Federal Reserve should cut interest rates by 25 basis points at the next FOMC meeting. He cites tariffs, labor markets, and low GDP growth as reasons for the rate cut. Waller expects the economy to continue cooling and believes that a rate cut now would be more beneficial than waiting until later in the year. His forecast for GDP growth is around 1% for the year, which is lower than the previous year’s growth. Overall, Waller’s speech suggests that the Federal Reserve should take action to support the economy and prevent it from slowing down further.
