According to Reuters, Federal Reserve (Fed) Governor Christopher Waller stated that with improving inflation trends, the Fed could cut rates as early as July. This statement contradicts the market's mainstream view that the Fed will remain on hold before September, reigniting discussions about monetary policy timing.
Waller noted that recent inflation trends look "quite good," and even though new tariffs may cause price impacts, they are only temporary. The Fed should "see through" the one-time effect. To avoid waiting until the labor market deteriorates, he argued:
"We don't want to wait until the labor market collapses before starting to cut rates."
Fed Mouthpiece: FOMC Lacks Sufficient Support for July Rate Cut
Commenting on Waller's statement, Wall Street Journal reporter Nick Timiraos, known as a Fed mouthpiece, said:
Fed Governor Chris Waller continues to play the most dovish role in the Federal Open Market Committee (FOMC).
He stated: "I fully support considering whether to cut rates at the next meeting because we don't want to wait until the labor market collapses."
Waller also hinted at the committee's internal dynamics - based on current data, the FOMC lacks sufficient support for a July rate cut. This raises the question: Is he prepared to voice dissent at the July meeting? Among all potential candidates for the next Fed chair, Waller may have presented the most intellectually substantive and well-reasoned argument for rate cuts.
Will Waller Become the Next Fed Chair?
Notably, Trump continues to pressure the Fed to cut rates and is looking for potential replacements for Fed Chair Jerome Powell. Waller, with a dovish stance, is seen as a top candidate. His dovish signal at this time is interpreted as a kind of "public interview". Nick Timiraos commented on this in another tweet:
Two things can be true simultaneously:
1) Waller has not always been at the core of the Fed committee, and his position has fluctuated within the policy framework. He advocated for earlier tapering in 2021, but withdrew his concerns after August and September 2021 data surprised the hawks.
By the fourth quarter of 2023, he made a significant shift, predicting six rate cuts in the December dot plot, believing inflation could decline significantly. After unexpectedly high inflation data in the first quarter of 2024, he turned hawkish; but as inflation data improved, he became dovish again.
2) Waller could unexpectedly become Fed chair next year, and by publicly stating that "inflation is not the next concern," his position would be advantageous when tariffs begin to impact the economy. If developments proceed as expected, this could work in his favor. Unlike other potential candidates, he hasn't consistently maintained a hawkish stance over the past decade, and he might encounter a president who prefers looser policies. Compared to the current chair, he wouldn't be as concerned about misreading inflation again, as this wouldn't define his historical legacy.
Additionally, Nick Timiraos further added:
Another key point to consider is: The next Fed chair under Trump will face the challenge of convincing committee members to accept their view.
This challenge may have recently become more difficult because Trump has made it very clear that he wants someone who will follow his instructions.
However, the Fed chair is not a king, and other committee members are not obligated to comply. A chair's influence comes from rationality, logic, and building consensus through consistent internal arguments.
Fed Official Barkin: Not in a Hurry to Cut Rates
On the other hand, Richmond Federal Reserve President Thomas Barkin said in a Reuters interview yesterday that with potential tariff-driven inflation and continued strong employment and consumption, the Fed is currently "not in a rush to cut rates".
"I don't think these data would make us eager to cut rates... We haven't hit our inflation target for four years."
Barkin noted that after the new round of import tariffs take effect, businesses in the Richmond region estimate they will raise prices later this year, with tariff levels potentially increasing further in the coming months. He emphasized that the Fed's stance is to wait and see, "not applying the brakes, just not accelerating".
