Federal Reserve Governor Waller: Rate cuts should begin this month, with multiple cuts possible over the next 3-6 months depending on the data.

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Federal Reserve Governor Waller stated that the Fed should start cutting interest rates this month and make several further reductions in the coming months, but he is open-minded about the specific pace of rate cuts, believing it will depend on future economic data.

In an interview on Wednesday, Waller said, “We need to start cutting rates at the next meeting.” He added, rate cuts do not have to follow a ‘fixed pace’ and policymakers can ‘observe how things develop’. He expects that “within the next three to six months, we may see multiple rate cuts.”

Waller’s comments come as Fed officials are working to deal with the potential economic shocks from tariffs, while signs of weakness are emerging in the labor market. Recent revisions to economic data point to a sharp slowdown in job growth, while rising service sector prices are keeping inflation above the Fed’s 2% target.

Earlier, Fed Chair Powell had opened the door to a possible rate cut at the meeting later this month during his speech at Jackson Hole, noting that the risk of surging unemployment is rising. Waller’s view echoes Powell’s latest remarks and further clarifies the Fed’s internal deliberations on launching rate cuts.

The Pace and Scale of Rate Cuts Depend on Data

Regarding the path of rate cuts, Waller said that although the direction is clear, the speed and ultimate scale will depend on the data. He believes that the current policy interest rate is still above the “neutral rate” level that neither stimulates nor restrains the economy:

“We know we want to move toward the neutral rate, and we roughly know how much we might need to cut, say 100 or 150 basis points. But how fast we can get to that level will depend on future data.”

He said that after initiating the first rate cut, the Fed could flexibly adjust its next steps according to economic developments.

Inflation Concerns and Slowing Employment Coexist

Waller’s call for rate cuts comes against a complex economic backdrop. On the one hand, the labor market is showing signs of cooling. Recent data revisions have revealed a sharp slowdown in job growth. Powell has also recently expressed caution regarding the risk of rising unemployment.

On the other hand, inflationary pressures remain, especially as rising service prices keep overall inflation above the Fed’s target. In addition, Waller mentioned that inflation risks from tariffs are also a major market concern. He is personally not worried, expecting that after short-term disruptions, the overall downward trend in inflation will continue and eventually return to the Fed’s 2% policy target in six to seven months. But he admitted, “Everyone else is worried.”

Waller has long been an advocate for rate cuts. He dissented with the decision to hold rates unchanged at the Fed’s July meeting, when he preferred a 25 basis point cut.

In addition to monetary policy, Waller also responded to whether he would run for the next Fed chairmanship. He revealed that he had previously communicated with Treasury Secretary Bessent, but has not interviewed for the Fed chair position and does not have any interview scheduled at this time. This information provides new clues for outsiders watching potential personnel changes at the top of the Fed. Treasury Secretary Bessent is expected to begin a series of interviews for the position starting this Friday.

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