Waller signals Fed is open to bigger cuts

Federal Reserve Governor Christopher Waller said today that the current economic data warrants action, suggesting that the Federal Reserve is fully prepared to cut rates.

While speaking at the University of Notre Dame, Waller pointed to the latest jobs data as evidence of a labor market aligning with modest economic growth.

“Today’s job report continues the longer-term pattern of a softening of the labor market that is consistent with moderate growth in economic activity,” he said.

“While the labor market has clearly cooled, based on the evidence I see, I do not believe the economy is in recession or necessarily headed for one soon,” Waller added.

“The time may come for the Fed to act forcefully and quickly to cut interest rates, but it will be based on the data “and not on any pre-conceived notion of how and when the FOMC should act,” Waller said.

Waller said that the August jobs data, which was released on Friday, showed a continuation of the labor market’s softening trend. This trend, he noted, is in line with moderate growth in economic activity.

He added that the Federal Reserve may have to ‘front-load’ cuts, a comment that suggests the Fed could cut rates by 50 basis points at the upcoming meeting in September.

Despite the cooling of the labor market, Waller does not see the economy as being in a recession or on the verge of entering one imminently.

Waller’s remarks come at a time when the Federal Reserve is closely monitoring economic indicators to gauge the appropriate monetary policy.

Waller’s “tone was quite dovish, just as it was with Powell at Jackson Hole, and the Fed has clearly pivoted in response to the cooling in employment and inflation. While Waller doesn’t commit to 25bp or 50bp on 9/18, the latter outcome seems very likely,” Vital Knowledge analysts said.

“Importantly, Waller doesn’t think the economy is in or imminently headed for a recession, although markets are increasingly concerned about this possibility.”

Citi economists also said today that they expect the Fed to cut by 50 bps in September.