NEW YORK—Federal Reserve Governor Christopher Waller said he continues to support additional rate cuts, despite conflicting economic signals.
Waller, speaking at the Council on Foreign Relations here, said the labor market appears to be weakening even as GDP and spending remain solid. “Something’s gotta give,” he noted, adding that the Federal Open Market Committee (FOMC) must move cautiously to avoid a policy mistake that could be difficult to reverse.
Waller emphasized that the ongoing government shutdown has complicated policymaking by delaying key economic data—including September employment, retail sales, and inflation reports. While some Labor Department employees have been recalled to release the inflation report before the next FOMC meeting, Waller said the lack of timely official data forces policymakers to rely more heavily on private-sector indicators and business contacts. Those contacts, he said, confirm the mixed picture: steady consumer spending alongside softening labor demand.
The Fed governor noted that GDP growth has been stronger than expected, with the Atlanta Fed projecting near 4% annualized growth in the third quarter. Yet job creation has slowed sharply—from an average of 111,000 per month early in the year to just 22,000 in August—and may have turned negative after revisions. Waller said this disconnect mirrors the “data puzzles” seen in 2022, when the economy contracted even as jobs expanded. If the shutdown ends soon, he estimated it could trim fourth-quarter GDP by a few tenths of a percentage point, but longer disruptions or permanent staff cuts would have deeper effects.
Inflation, Waller said, remains near target once temporary tariff effects are excluded. He cited staff analysis showing that underlying inflation is “fairly close to 2%,” and that well-anchored expectations give the Fed room to normalize policy. The more immediate concern, he argued, is the labor market. Many firms are holding on to workers but not hiring—creating a “no hire, no fire” dynamic that could signal stagnation. Waller also warned that artificial intelligence may dampen labor demand in some sectors, though he sees AI-driven productivity gains as a longer-term positive.
Given these conditions, Waller said he favors a 25-basis-point rate cut at the FOMC’s October 29 meeting. Beyond that, the pace of easing will depend on how the economy reconciles its “split screen” of strong output and weak employment. If growth persists, the Fed could slow its rate reductions; if the labor market deteriorates further while inflation stays subdued, Waller said policymakers should be ready to cut rates another 100 to 125 basis points to reach a neutral level.