Federal Reserve Governor Christopher Waller has indicated that the central bank may begin cutting interest rates as early as July, diverging from the more measured stance taken by Fed Chair Jerome Powell. Speaking in a CNBC interview, Waller suggested that the Federal Reserve is in a suitable position to lower rates soon, citing concerns about labor market softness and arguing that the Fed should not delay action until the job market worsens.
Waller specifically pointed to high unemployment among recent college graduates as a sign of emerging weakness in the labor market. His position comes as inflation continues to cool, with core inflation hovering around 2.1% in April, close to the Fed’s long-term target of 2%. These conditions, according to Waller, support a rate reduction, which he believes could take place as early as the Fed’s July 30 meeting.
In contrast, Powell remains cautious, largely due to uncertainties surrounding the inflationary impact of former President Donald Trump's proposed tariffs. Trump has advocated for a new wave of protectionist trade measures, including tariffs of up to 60% on Chinese imports and 10% on other countries. Powell has expressed a desire to wait and observe the effects of these tariffs on prices before supporting any interest rate cuts.
Waller, however, maintains that such tariff-induced inflation is likely to be a "one-off level effect" rather than a source of persistent price increases. He argues that the central bank should "look through" these temporary distortions and focus on the broader inflation trend. His remarks signal growing internal disagreement within the Federal Open Market Committee (FOMC). While Waller is calling for imminent action, seven FOMC members have indicated they do not anticipate rate cuts through the rest of 2025.
This divergence reflects not only differing interpretations of inflation risks but also varied assessments of the current economic trajectory. The Fed’s own analysis notes that the inflationary impact of tariffs remains highly uncertain. Estimates suggest that modest tariffs could add 0.5 to 0.8 percentage points to core inflation, while more aggressive tariffs could contribute as much as 2.2 points.
Despite Waller’s calls for cuts, market sentiment appears skeptical. According to the CME FedWatch Tool, investors currently assign only a 15% probability to a rate cut in July. Moreover, Waller emphasized that the Fed’s role is not to accommodate fiscal policy or provide low-cost financing for government borrowing—an implicit rebuttal to Trump’s pressure on the Fed to ease monetary policy.
Waller’s stance positions him as the central bank’s leading advocate for a return to rate reductions, reinforcing the growing divide over how to manage policy amid geopolitical uncertainties and fluctuating inflationary pressures.
