Key Takeaways
Federal Reserve Governor Waller supports a possible interest rate cut as soon as July.
Current futures markets indicate traders expect a rate cut later, most likely in September.
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Fed Governor Christopher Waller has shown support for an interest rate cut in July, saying that inflation is no longer a major economic threat and that the central bank should begin easing before any labor market slowdown.
Waller, speaking in a recent CNBC “Squawk Box” interview, argued that it would be unwise to wait for the job market to deteriorate before responding. He suggested that the Fed should begin discussing a potential rate cut in July rather than delaying action until conditions worsen.
“I’m all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting, because we don’t want to wait till the job market tanks before we start cutting the policy rate,” he said.
“That would be my view, whether the committee would go along with it or not,” the Fed Governor noted.
Waller’s comments came just days after the Fed decided to keep its benchmark rate unchanged at 4.25%–4.5%, in line with market expectations. The committee, including Waller, voted unanimously in favor of the hold.
The Fed has lowered its 2025 GDP growth estimate to 1.4% and raised its inflation forecast to 3%. While most measures of long-term inflation remain in line with the Fed’s 2% target, according to Chair Jerome Powell, short-term inflation expectations have ticked higher, driven in part by recent tariff policies.
On that point, Waller said he did not expect the new tariffs to substantially fuel inflation.
Despite Waller’s support for a potential rate reduction, CME FedWatch shows that most investors anticipate no change in interest rates in July. Futures markets and economists indicate a high probability that the Fed will begin cutting rates starting in September.
According to the Fed’s dot plot, seven of 19 meeting participants expect rates to hold steady this year, two forecast one cut, and ten project two or three reductions.
The median forecast still points to a half-percentage point cut for 2025. President Donald Trump has repeatedly urged the central bank to implement immediate and substantial interest rate cuts, including calls for cuts of 2% to 2.5% points.
Waller, however, advocates for a measured approach.
“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,” he said. “We’ve been on pause for six months to wait and see, and so far, the data has been fine.”
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