Fed Governor Waller backs rate cut at September meeting, open to bigger move

Federal Reserve Governor Christopher Waller on Friday backed an interest rate cut at the central bank’s next policy meeting in less than two weeks, indicating he would be open to a substantial reduction if necessary.

“Given the ongoing progress on inflation and moderation in the labor market, I believe the time has come to lower the target range for the federal funds rate at our next meeting,” Waller said in prepared remarks to the Council on Foreign Relations in New York.

Other policymakers have recently argued for monetary policy easing soon, but this is one of the clearest indications that this will happen at the Federal Open Market Committee meeting on Sept. 17-18. Waller repeated language that Federal Reserve Chairman Jerome Powell used in late August: that “the time has come” to tighten monetary policy.

“Determining the pace of rate cuts and ultimately a full reduction in the policy rate are decisions that will be made in the future,” Waller added. He noted that he is “open-minded about the size and pace of cuts” and said: “If the data suggests the need for larger cuts, then I will support those as well.”

His comments followed a weaker-than-expected nonfarm payrolls report on Friday, which contributed to the belief that the pace of hiring is weakening. The Labor Department reported job growth of 142,000, more than in July but still below the 161,000 forecast by the Dow Jones Industrial Average.

Waller did not specify how much he thinks the Fed should cut rates or how often, but said he is open to the possibility that being aggressive may be necessary to keep the labor market afloat as inflation moderates toward the central bank’s 2% target.

He said that if the labor market deteriorates more quickly than expected, the Fed should react with deeper cuts, which he said would lead to “a higher probability of achieving a soft landing.”

“Furthermore, I do not expect this first cut to be the last. With inflation and employment close to our long-term objectives and the labour market moderating, a series of reductions is likely to be appropriate,” he said.

Futures market prices after the jobs report were tilted toward a higher probability of a quarter-percentage-point rate cut this month. But they also indicated more aggressive moves later in the year, with a half-point move in November and possibly another in December, according to the CME Group’s FedWatch indicator.