A Fed governor says it's time to cut interest rates now with the labor market 'on the edge'

Federal Reserve Governor Christopher Waller said Thursday that he wants the central bank to cut interest rates at its next meeting, saying the labor market could "deteriorate" if it doesn't. 

“I believe that the Federal Open Market Committee should reduce our policy rate by 25 basis points at our next meeting,” Waller said in a speech at the Money Marketeers of New York University. 

Waller said that while the labor market “looks fine on the surface,” downside risks are rising. “We should not wait until the labor market deteriorates before we cut the policy rate,” he said. 

Pointing to slow growth in the private sector compared to payroll gains in state and local government, Waller said that “private payroll data are being overestimated” and will change after the benchmark revision in early 2026. Taking in account for expected changes to this data, Waller said private sector gains in June were “much closer to zero.” 

“This is why I say private-sector payroll gains are near stall speed and flashing red,” he said. “Looking across the soft and hard data, I get a picture of a labor market on the edge.” 

Citing other reasons for his recommended rate cut, Waller said that tariffs don’t pose a lasting impact to inflation, only a “one-off increase” causing a “temporary surge.”  

He added that the policy should be “close to neutral” and “not restrictive.” 

Considering an expected “soft” GDP growth number combined with an unemployment rate at 4.1% coupled with inflation close to the Fed’s target, he said the data implies that “the policy rate should be around neutral, which the median of FOMC participants estimates is 3 percent, and not where we are—1.25 to 1.50 percentage points above 3 percent.” 

Waller isn’t typically “a politically motivated character,” making his “strong view” on the Fed rate important “in that context.,” said W. Brad Bechtel, Global Head of Jeffries FX, on Friday. “Pretty strong view from Waller as the Fed gets close to entering their blackout period before the next meeting.”

“We continue to expect three consecutive 25bp cuts this year at the September, October, and December FOMC meetings. We expect two additional 25bp cuts in 2026 for a terminal funds rate range of 3-3.25%,” economic researchers at Goldman Sachs said Thursday.

“The economy is still growing, but its momentum has slowed significantly, and the risks to the FOMC's employment mandate have increased,” Waller said. 

President Donald Trump this week again floated the idea of firing Federal Reserve Chair Jerome Powell. The reaction was immediate: bond yields jumped, trading volume spiked to levels not seen since April’s “Liberation Day” tariff announcement. 

—Catherine Baab contributed to this article.