Christopher Waller, who serves on the Federal Reserve’s Board of Governors, said Friday the central bank should deliver interest rate cuts as soon as July, echoing President Donald Trump’s demands for lower borrowing costs.
In an interview with CNBC, Waller said the effects of Trump’s hefty tariffs on goods imported into the US will likely be limited and that central bankers should “look through these type of price shocks” because they’ll likely only result in a “one-off” increase in inflation.
“We’re in a good spot right now for talking about bringing the rate down,” Waller said.
He stopped short of calling for the supersized rate cuts Trump has demanded, saying that the Fed should “start slow.”
For months, Trump has blasted the Fed and its leader, Jerome Powell, for not lowering rates quickly enough, saying the US central bank is lagging behind its European counterpart. He’s said the federal government is stuck making massive interest rate payments on its debt because the Fed hasn’t lowered borrowing costs.
But the Fed doesn’t consider the government’s finances when setting rates. As Powell laid out in a press conference this week following the central bank’s latest monetary policy meeting, the main reason the central bank hasn’t lowered rates is because it wants to see how Trump’s policies play out and how they ultimately affect the US economy. Recent speeches from other Fed officials confirm that approach.
The Fed is tasked by Congress to maximize employment and stabilize prices, its so-called dual mandate. So far, inflation has been tame — not yet boosted by Trump’s tariffs, although many economists anticipate a coming surge — and the labor market remains in decent shape.
Waller, however, said there have been signs of the job market cracking, such as elevated youth unemployment, making the case for imminent rate cuts, especially considering that inflation hasn’t gone up yet.
Waller’s latest comments come as Trump is actively considering who Powell’s successor will be.
Last week, Trump said he will announce his pick for Fed chair “very soon,” well in advance of May 2026, when Powell’s term ends. Trump’s disdain for Powell stretches back to his first term as president, all centered on Powell’s refusal to acquiesce to Trump’s demands for lower rates.
Powell frequently stresses that the Fed’s decisions are solely based on what economic figures show.
With Powell’s term ending in less than a year, there are now at least three contenders for the top job at the Fed: Kevin Warsh, a former Fed governor; Treasury Secretary Scott Bessent; and Waller, a current Fed governor who was appointed to his current role by Trump in 2020.
Assuming Trump makes an announcement well ahead of next May, Trump’s pick will be known as the “shadow” Fed chair, an unprecedented development in the Fed’s history, scholars in monetary policy tell CNN. No US president has ever announced their nominee for Fed chair several months before the term of the current one ends.
The health and future of the labor market is a key variable for Fed officials when thinking about rate cuts. That’s because a drop-off in hiring and an uptick in unemployment could move the needle for the Fed to finally lower rates, even if there’s an increase in inflation because of tariffs.
“The labor market is okay, but it’s not strong like it was in 2022,” Waller said. That means higher inflation likely won’t become entrenched because workers won’t have the leverage to demand higher wages to offset price increases — what Waller referred to as “second-round effects.”
Other Fed officials have similarly said the labor market has gradually lost steam over the past two years, but is holding up. Unemployment has remained below 4.2%, a historically low level, since October 2021 and employers have continued to pump out jobs in recent months.
However, unlike other Fed officials, Waller wants to preemptively lower rates to prevent a deteriorating labor market.
“Maybe the labor market is starting to soften more than we might want it to… so you’re starting to worry about the downside risks to the labor market,” Waller said. “Move now, don’t wait.”
“Why do we want to wait until we actually see a crash before we start cutting rates?” he added.
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