Key Points:
- Waller backs Sept 2025 rate cut, signaling easing cycle.
- Bigger cut possible if jobs data worsens.
- Markets expect multiple cuts amid soft inflation and labor.
Federal Reserve Governor Christopher Waller has signaled support for cutting interest rates as early as September 2025, citing growing signs of a cooling labor market and easing inflation. He suggested a 25-basis-point reduction at the upcoming Federal Open Market Committee (FOMC) meeting, with further cuts expected over the next three to six months.
The Fed’s benchmark interest rate currently sits at 4.25%–4.50%. Waller said policy should gradually move closer to a neutral level of around 3%, warning that delaying action could risk deeper economic damage. He highlighted that inflation is steadily moving toward the central bank’s 2% target, excluding temporary tariff-related pressures, and emphasized the importance of preemptive moves before labor conditions deteriorate further.
Christopher Waller and fellow Governor Michelle Bowman were among the few policymakers who dissented at the July meeting, when the Fed held rates steady, arguing that waiting posed greater risks. Waller, seen by some as a contender to succeed Chair Jerome Powell, has laid out a cautious but clear strategy for easing monetary policy.
Flexibility for a Larger “Jumbo” Cut
While a quarter-point cut remains the base case, Waller indicated he would be prepared to back a larger “jumbo” cut if upcoming jobs data reveal a sharper-than-expected slowdown. The U.S. labor market has already shown signs of weakening, with job gains cooling in July and the August payroll report expected to provide crucial confirmation.
Christopher Waller stressed that monetary policy decisions must remain data-driven, reflecting the evolving economic landscape. His willingness to shift toward a bigger cut signals the Fed’s readiness to act decisively if economic conditions worsen. Markets are watching closely as the September 17 policy meeting approaches, with the employment report and upcoming inflation readings likely to shape the final decision.
Markets Anticipate Fed Shift Amid Political Tensions
Financial markets have already priced in a high probability of a September rate cut, with expectations climbing to more than 80%. Investors anticipate at least two reductions before year-end, followed by steady quarterly cuts in 2026, which could bring the benchmark rate closer to 2.75%–3.00%.
Chair Jerome Powell has maintained that the Fed’s approach will remain cautious and data-dependent, particularly as inflation continues to moderate. However, political uncertainty has complicated the outlook. Recent tensions surrounding President Trump’s dismissal of a Fed governor and the legal challenges that followed have reignited concerns over the central bank’s independence.
Despite this backdrop, many economists believe that with inflation cooling and labor markets showing softness, the Fed is preparing to gradually pivot toward easing. Christopher Waller remarks reinforce the growing sense that September may mark the beginning of a new phase in monetary policy—one that balances the risks of inflation against the mounting need to support economic growth.
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