Fed’s Waller Advocates July Rate Cut Amid Slowing Growth and Labor Market Risks

Federal Reserve Governor Christopher Waller has called for a 25-basis-point interest rate cut at the central bank’s upcoming July 29–30 meeting, citing signs of slowing U.S. economic growth and emerging risks in the labor market. His comments have introduced a new dynamic to the ongoing debate within the Federal Reserve over the appropriate path for monetary policy in the second half of 2025.

Waller argued that the recent spike in inflation, driven in part by newly announced U.S. import tariffs, is likely to be temporary. He estimated the tariff impact on overall inflation to be between 0.75% and 1%, and emphasized that such effects should not override the Fed’s broader assessment of economic momentum. “We should look through short-term noise and focus on the underlying trajectory of growth and employment,” he said.

His position contrasts with the more cautious stance of other Fed officials, who remain concerned about persistent inflationary pressures and resilient consumer demand. Waller, however, sees room for the Fed to return to a neutral policy stance, and he did not rule out further rate cuts if economic data continues to soften.

In response to concerns that his proposal may be politically motivated—particularly amid heightened criticism of the Fed by President Trump—Waller firmly rejected the idea, stating that his recommendation is based on economic fundamentals alone.

Market reaction has so far been measured. While short-term bond yields remained stable, investors are increasingly pricing in rate cuts starting as early as September, with some now assigning a higher probability to action in July. The U.S. dollar held steady, and equity markets remained supported by strong corporate earnings.

Waller’s statement adds complexity to the Fed’s policy outlook ahead of its late-July meeting. Markets will now closely watch comments from Chair Jerome Powell and other voting members for clues on whether Waller’s proposal gains broader support within the committee.

With inflation still above the Fed’s 2% target and economic signals sending mixed messages, the next few weeks will be critical in determining the Fed’s next move—and by extension, the direction of global financial markets.