WASHINGTON — Federal Reserve Governor Christopher J. Waller said Monday that fresh labor market data has complicated the policy outlook, leaving the Federal Open Market Committee (FOMC) facing what he described as a near “coin flip” decision ahead of its March meeting.
Speaking at the 42nd Annual NABE Economic Policy Conference in Washington, Waller reiterated that he dissented at the Fed’s January meeting, when policymakers held rates steady after three 25-basis-point cuts since September. He said he favored another reduction at that time, arguing that a fragile labor market and underlying inflation running close to 2% justified further easing. For financial institutions, the key takeaway is that upcoming February employment and inflation data will heavily influence whether the Fed pauses or delivers an additional 25-basis-point cut in March.
January’s employment report surprised to the upside, with 130,000 total jobs added and stronger private-sector payroll growth. But Waller cautioned that the gains were concentrated in health care and construction and may not represent broad-based improvement. He emphasized that 2025 was one of the weakest years for job creation outside of a recession in decades and warned that the latest report could prove to be “noise” rather than a durable signal of labor-market strength. He said he will look for confirmation in February data before reassessing policy.
On growth, Waller said the economy continues to expand at a solid pace, with fourth-quarter GDP estimated at 1.4% annualized and private domestic demand up 2.4%. Business surveys point to improving activity, particularly in manufacturing and services. However, he noted that much of last year’s business investment was concentrated in data centers and related projects, suggesting uneven momentum beneath the surface. Consumer spending remains positive but has slowed, with signs that lower- and middle-income households are pulling back even as higher-income consumers remain resilient.
Regarding inflation, Waller said headline and core measures remain above the Fed’s 2% target, with January PCE inflation estimated around 2.8% year over year and core near 3%. Still, he maintained that underlying inflation—excluding temporary tariff effects—is close to target. He reiterated that the Fed should “look through” tariff-driven price movements, including those potentially affected by a recent Supreme Court ruling. Ultimately, he said, the March decision will hinge on whether labor-market data confirm renewed strength or reinforce last year’s weakness—an outcome that will directly shape rate expectations for banks, credit unions and other financial institutions.