Fed Governor Waller Says Policy Is Restrictive, Signals Room To Cut Rates

Federal Reserve Governor Christopher Waller says monetary policy is still restrictive and that the central bank has scope to lower interest rates, while urging a measured, data dependent approach. Speaking at the Yale School of Management CEO Summit on December 17, Waller frames his view around recent growth and labor market data and signals support for a gradual return of the policy rate toward neutral.

Waller tells the audience, "I still think we're probably, you know, maybe we're 50 to 100 basis points off of neutral," and he adds there is "no rush to get down." He characterizes the U.S. labor market as "very soft," and on the level of policy he says current rates remain "as much as one percentage point above" his view of neutral. Waller reiterates a contingent strategy for easing when he says, "We can cut now and see how the data evolves. If the tariff effects do not lead to a major shock to inflation, the Committee can continue reducing the rate at a moderate pace. If we do get significant upside surprises to inflation and employment, we can pause."

Those remarks come after the Federal Open Market Committee trimmed the federal funds rate by 25 basis points to a target range of 3.5 percent to 3.75 percent a week earlier. Waller says he dissented at that meeting because he believed a 25 basis point reduction was the appropriate stance. He has advanced that argument in prior speeches and says his view has not changed, although he declines to pin down a specific timetable for additional cuts.

Waller bases his assessment on a set of economic readings he describes as compatible with policy moving closer to neutral. In remarks excerpted by the Federal Reserve he points to real gross domestic product growth of 1.2 percent in the first half of the year, an unemployment rate of about 4.1 percent near the Committee's longer term estimate, and total inflation running just slightly above 2 percent. Taken together he argues those metrics reduce the case for holding policy at higher, potentially damaging levels.

Financial markets respond to Waller's tone by shaving back some of the repricing of policy risk that followed earlier communications. Treasury yields, especially at the short end of the curve, move toward flatter territory as investors reassess how long rates may stay elevated. Traders and portfolio managers interpret his view that policy is "meaningfully above neutral" as a dovish signal relative to officials who emphasize higher for longer, and they now watch data on inflation and payrolls for confirmation of a softer path.

The longer term stakes are straightforward. If the Fed can engineer a soft landing while preserving its inflation credibility, the committee can trim rates in a deliberate sequence. If inflation or employment surprise to the upside, the process will pause. Waller's prominence and his public dissent add weight to his view within policy circles and among market participants who are also noting his potential candidacy for future leadership roles at the central bank. His remarks therefore shape both the near term rate outlook and the political dynamics inside the Fed.