Federal Reserve governor Chris Waller said Wednesday that he anticipates cutting interest rates further next year to shore up a cooling job market.
“The labor market’s telling you we should continue cutting the rates,” Waller said during a conversation at the Yale University CEO Summit. “We’re not seeing a dramatic decline of the labor market going off a cliff, just kind of just continuing to soften and soften. So, we can go at a moderate pace.”
Waller said he thinks the neutral level for the Fed’s benchmark interest rate — a level aimed at neither boosting nor slowing economic growth — is below 3%. The Fed cut its federal funds rate last week to a target range of 3.5% to 3.75%.
“I still think we’re probably, you know, maybe we’re 50 to 100 basis points off of neutral,” he said. “We’ve still got some room we could bring things down.”
Christopher Waller, governor of the US Federal Reserve, speaks during a Fed Listens event on March 22, 2024, in Washington, D.C. (Al Drago/Getty Images) · Al Drago via Getty Images
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Waller’s comments come after the Federal Open Market Committee signaled a potential pause on rate cuts as officials take stock of the economy. The median projection of the 19 members of the interest rate-setting committee is for just one cut next year.
Last week, Fed Chair Jerome Powell said, “The fed funds rate is now within a broad range of estimates of its neutral value, and we are well positioned to wait to see how the economy evolves.”
Waller on Wednesday acknowledged that his colleagues are worried inflation could get stuck at current levels of around 3%, preventing the rate cuts he favors.
For his part, Waller acknowledged that inflation remains above the Fed’s 2% goal but said he believes it will start to decline in the next three to four months.
“There are no forces that are suggesting that inflation’s going to take off again in 2026,” he said. “If anything, the tariff effects, whatever they may be, those will start coming off as a one-time price effect. So we’re not going to see persistent inflation from it.”
That he thinks inflation will come down in the first half of the year is something that he says the Fed could continue to cut rates on alone.
“There’s no reason we have to keep rates high just because there’s positive growth in the economy,” Waller said. “That doesn’t cause inflation per se. But because inflation is still up, we can take our time. We just can steadily kind of bring the policy rate down towards neutral [and] keep an eye on inflation.”
Waller is set to meet with President Trump on Wednesday afternoon as he sits down for an interview for consideration to be the next chair of the Fed. Waller said he believes central bank independence is very important, but that officials are also accountable to the public.