Christopher Waller, a Federal Reserve governor and FOMC member, basically threw down the gauntlet this week: it’s time to cut interest rates, and frankly, we should’ve done it already.
Speaking at the Economic Club of Miami on Thursday, Waller made his case crystal clear. Since July, when he was one of only two FOMC members voting for a rate cut (awkward), the economic data has shifted dramatically. Now he’s saying what everyone’s been thinking: “Let’s get on with it.”
Here’s the thing—Waller isn’t being reckless. He’s actually being cautious in a different way. The labor market is showing real signs of weakness. Private-sector job creation has cratered to about 52,000 jobs per month in May, June, and July. That’s half the pace from earlier in 2025. Teenagers are struggling to find work. Wage growth for job switchers is declining. These aren’t just random blips; they’re warning signs.
Meanwhile, inflation is cooperating. The PCE inflation data came in at 2.6% in July, right where the Fed wants it. Core PCE ticked up slightly to 2.9%, but Waller argues that’s mostly tariff noise—temporary effects that should fade by early 2026. Strip those out, and underlying inflation is basically at the Fed’s 2% target.
So what’s the holdup? Waller’s argument is that the Fed is being too cautious. With the federal funds rate sitting at 4.25%-4.50% and the neutral rate estimated at around 3%, monetary policy is still moderately restrictive. Translation: the Fed is still tightening the economy when it should be easing off the gas.
The real risk, according to Waller, is falling behind the curve. If the labor market deteriorates faster than expected—and there are signs it could—the Fed needs to have already started cutting. Waiting until things get bad means playing catch-up, which usually means more aggressive cuts later. That’s messier for markets and the economy.
Waller’s prescription? A 25-basis-point cut in September, followed by additional cuts over the next three to six months, depending on incoming data. It’s measured, data-dependent, and frankly, it’s what markets have been pricing in anyway.
If Waller gets his way—and momentum is shifting in that direction—we’re looking at a Fed that’s finally pivoting from “rates stay high” to “rates are coming down.” That’s huge for stocks, bonds, and anyone with a mortgage or credit card debt.
The catch? This only works if inflation stays under control and the labor market doesn’t completely crater. If either of those assumptions breaks, the Fed could slam on the brakes again, and we’d be back to square one.
For now, though, Waller’s message is clear: the Fed sees the warning signs, and it’s ready to act.
