Is the Fed Too Tight? Waller: “This is a Threat to the Economy”
Christopher Waller, a member of the Fed’s Board of Governors, has spoken out: he supports a 25 bps interest rate cut at this week’s meeting because he believes current monetary policy is still too tight and is stifling economic activity. The statement, released Friday, immediately signaled a significant push within the Fed itself to move policy closer to “normal” more quickly.
Waller acknowledged that economic growth appears solid, but he believes there are serious “cracks” in the labor market. His version is clear: the job market remains weak and “doesn’t look healthy.” Even if some of the problem stems from labor supply, he believes the core issue lies in weakening demand—an indication that the economy could lose steam if interest rates remain high for too long.
Regarding inflation, Waller highlighted one currently hot topic: tariffs. He acknowledged that inflation could rise due to tariffs, but he believes monetary policy should not overreact to increases that are “transitory” or stem from trade policy—as long as inflation expectations remain manageable. In his view, inflation (excluding tariffs) is actually approaching the 2% target and is moving on the right track.
Waller also issued a stark warning about employment data. He predicted that last year's weak employment figures could be revised lower, so that the 2025 outlook could look like virtually no payroll growth. He even mentioned that layoff plans for 2026 are already underway, along with significant doubts about the job growth outlook—and "quite significant" downside risks.
The bottom line: Waller wants policy to move closer to the neutral level, which he estimates is around 3%, compared to the current 3.50%–3.75% range. The message is clear—if the Fed "steps on the brakes" for too long, the risks of a sharp economic slowdown and a more fragile job market could outweigh the benefits of keeping interest rates high.
Source: Newsmaker.id
