Waller Urges July Rate Cut, Highlighting Fed Policy Split

Federal Reserve Governor Christopher Waller has articulated his most explicit endorsement to date for an interest rate reduction at the upcoming Federal Open Market Committee meeting scheduled for July 29-30, 2025, advocating for a 25 basis point cut to the federal funds rate, which currently stands at 4.25% to 4.5%. In a speech delivered on July 17, 2025, at the Money Marketeers of New York University, Waller emphasized that such an adjustment would address emerging downside risks to the labor market and economic growth, while asserting that monetary policy remains restrictive and should transition toward a more neutral stance. He stated, "I believe it makes sense to cut the FOMC's policy rate by 25 basis points two weeks from now," underscoring the importance of avoiding lagging behind economic developments preemptively.

Waller's rationale centers on several key economic indicators. He noted that recent data indicate total Personal Consumption Expenditures inflation at approximately 2.5% and core inflation at 2.7% for June 2025, influenced temporarily by tariff increases, which he views as one-off effects rather than drivers of sustained price pressures. He argued that underlying inflation is nearing the Federal Reserve's 2% target, with expectations anchored and no evident forces poised to elevate it persistently. On the labor market, Waller expressed concern that it is "on the edge" of deterioration, with private-sector payroll growth at a near-stall speed of 74,000 in June, elevated unemployment among recent college graduates, and low hiring rates despite stable firing levels. Economic growth has slowed to about 1% in the first half of 2025, down from 2.8% in the latter half of 2024, with consumer spending similarly subdued, reinforcing his view that risks to the employment mandate have intensified.

This position highlights a growing divide within the Federal Reserve. Waller is among a minority—reportedly one of two officials—advocating for an immediate cut in July, while the majority of FOMC participants, as reflected in June projections, anticipate at least two rate reductions in 2025 but have signaled reluctance to act this month amid lingering inflation above target and uncertainties surrounding tariff impacts. Financial markets, aligning more closely with the prevailing Fed consensus, have priced in rate cuts commencing in September 2025, with expectations for two easings by year-end. Waller clarified that his recommendation is data-driven and apolitical, denying any external influences on Fed decisions.

In subsequent meetings, Waller supported an additional 25 basis point reductions to achieve neutrality if conditions evolve as anticipated, with controlled inflation and subdued growth. However, he stressed that future actions would be determined on a meeting-by-meeting basis. This stance contributes to ongoing deliberations within the central bank, potentially influencing market sentiment and economic forecasts as the July meeting approaches.

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