Federal Reserve President Christopher Waller on Friday expressed caution about the current economic situation, but said there was still an opportunity to cut interest rates this year.
Waller, who previously supported rate cuts, said in an interview with CNBC that recent labor market trends and the uncertainty of war with Iran call for a more conservative approach.
“That doesn’t mean I’m going to stay put for the rest of the year,” Waller said on “Squawk Box.” “I want to wait and see how this situation plays out. If things go reasonably well and the labor market continues to be weak, I will start advocating for lower interest rates again later this year.”
The market has almost completely eliminated the possibility of a rate cut between the end of 2026 and 2027. That’s a change from prewar expectations, when traders expected two or three rate cuts this year.
But high oil prices and a period of uncertainty about how long the war would last changed market expectations and caused Waller and other policymakers to reconsider. Waller opposed the Federal Open Market Committee’s decision to hold off on rate cuts in January, but earlier this week he agreed with the majority’s call for another pause.
His previous dovish position was motivated by the apparent weakening of the labor market, with little net job growth in 2025. However, he noted Friday that the unemployment rate remains unchanged due to “net zero” growth, even though nonfarm payrolls fell by 92,000 in February because the labor force is also not expanding.
“If we lose another 90,000 jobs in the next jobs report, that’s like 4 out of 5 negative reports. To me, that’s not zero. So at that point you have to start thinking that this labor market is not good,” Waller said. “I don’t think this war won’t be of any use going forward, but we’ll have to wait and see what happens with inflation.”
Waller is currently generally optimistic about inflation, saying that while the temporary effects of tariffs will push inflation higher, the Fed is otherwise structurally on track toward the Fed’s 2% target.
“If the impact of the tariffs does not subside by the second half of this year, and inflation starts to rise after that, we will be faced with difficult questions about whether to worry about inflation or whether to bet on a recession,” he said. “So I’m going to be watching what the future labor market looks like to determine whether I’m going to start advocating for rate cuts in future meetings, but I also want to see what happens with inflation.”
Early Friday, Fed Director Michelle Bowman, who was nominated by Waller to lead the Fed by President Donald Trump, said she believed the Fed could cut interest rates three times this year. That would bring the benchmark federal funds rate below a neutral level that FOMC officials view as neither supporting nor constraining growth.
Bowman took that position even though he said in an interview on Fox Business that he expects “strong growth” this year “supported by the supply-side policies that the current administration has put in place.”
Mr. Bowman is one of only three Fed officials who expect aggressive rate cuts this year, according to the latest version of the Fed’s “dot plot” grid released Wednesday. A total of 19 policymakers are participating in the grid.
