Waller makes strongest call yet for rate cut in July, underscoring Fed divide
- - - Waller makes strongest call yet for rate cut in July, underscoring Fed divide
Jennifer SchonbergerJuly 18, 2025 at 9:29 PM
Federal Reserve governor Christopher Waller made his strongest call yet for a rate cut in July as he again argued that any inflation from tariffs would be temporary, underscoring a divide within the central bank.
"I believe we should cut the policy rate at our meeting in two weeks," Waller said bluntly in a speech in New York Thursday night, referring to the central bank's July 29-30 policy meeting.
He argued that the Fed's policy rate should be 3%, which is 125-150 basis points lower than the current rate of 4.25%-4.5%.
Waller's words carry increasing weight since he is considered to be among the candidates to replace Jerome Powell as Fed chair next May, when Powell's term is up.
He told Bloomberg Friday that if President Trump "says, 'Chris, we want you to do the job,' I would say yes," but stressed that the president "has not contacted me." He also hinted he may dissent at the July meeting if his colleagues hold rates steady, as is expected.
Waller has been outspoken since the Fed’s last meeting in June about the case for cutting rates sooner rather than later, even saying last week that his opinion was "not political." One of his colleagues, Michelle Bowman, has made the same argument for a July cut.
Their views align with Trump, who has been hammering the Fed and Powell to lower rates by as many as three percentage points.
Federal Reserve governor Christopher Waller. (Reuters/Brendan McDermid/File Photo) (Reuters / Reuters)
Waller again made the case on Thursday night that tariffs offer one-off price increases, allowing the Fed to "look through" them and refocus on the employment side of its dual mandate.
And he favors cutting rates now because while the job market looks fine on the surface, private sector job growth is near “stall speed” and other data suggests downside risks to the job market have increased.
He noted that half of the payroll gain in June reported by the Labor Department came from state and local government, while private payroll employment increases were smaller than in the previous two months.
“With inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate,” Waller said.
The new comments are the latest sign of how opposing camps are now forming inside the central bank over Trump's tariffs and how they should affect the Fed's rate decisions.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Some policymakers are not budging from their view that rates should remain where they are despite intensifying pressure from Trump and his allies to ease monetary policy immediately.
Federal Reserve governor Adriana Kugler and New York Fed president John Williams both made this argument in speeches delivered on Thursday and Wednesday, citing the risk of inflation pressure from tariffs.
"With the unemployment rate still at historically low levels, elevated short-run inflation expectations, and goods inflation rising due to the upward pressure from tariffs, I find it appropriate to hold our policy rate at the current level for some time," Kugler said in her Thursday speech in Washington, D.C.
"I judge that inflation is likely to increase further as tariff effects build up during the rest of the year," she added.
Fed governor Adriana Kugler at a Federal Reserve Board open meeting on June 25. (Saul Loeb/AFP via Getty Images) (SAUL LOEB via Getty Images)
On Wednesday night, Williams stressed that he thinks tariffs are already pushing up inflation and that this will increase in the coming months. He expects tariffs will push up inflation by a full percentage point in the second half of this year and into the first part of 2026.
"Maintaining this modestly restrictive stance of monetary policy is entirely appropriate to achieve our maximum employment and price stability goals," Williams said in his speech.
Powell has also argued for more time to assess whether inflation does in fact move higher over the summer, a stance that has frustrated Trump and the White House.
Williams of the New York Fed made a similar argument Wednesday, saying holding rates steady will allow more time to assess the data.
Read more: How much control does the president have over the Fed and interest rates?
John Williams, president of the Federal Reserve Bank of New York. (Apu Gomes/Getty Images) (Apu Gomes via Getty Images)
Williams said he anticipates inflation will come in between 3% and 3.5% this year and then fall back to about 2.5% next year before reaching 2% in 2027. The Fed's goal is to get inflation back down to 2%.
Kugler noted that the central bank's still-restrictive policy stance is important to keep longer-run inflation expectations anchored.
She said she has not seen any progress on headline and core inflation over the past six months, noting that goods inflation has gone up, which reflects some pass-through of increased tariffs.
Kugler stressed that businesses may not yet be passing the higher tariffs to their selling prices because they are waiting for greater clarity.
She also noted that tariff rates could increase further, as seen in newly proposed "reciprocal" tariffs on goods from several countries and the new tariffs on copper introduced last week, putting further upward pressure on prices.
Click here for in-depth analysis of the latest stock market news and events moving stock prices
Read the latest financial and business news from Yahoo Finance
Source: “AOL Money”
