Waller questions labor market strength, eyes March FOMC decision

Federal Reserve Governor Christopher J Waller recalled his January FOMC dissent against holding the policy rate steady, advocating for another 25 basis point cut.

He argued that slowing job gains and increased downside risks to employment, amid somewhat elevated inflation, warranted further easing.

Waller noted underlying inflation was running close to 2 percent and felt tariff effects should be looked through.

The January employment report, however, came in "substantially stronger" than he and most forecasters expected, showing more jobs created than in the previous nine months combined.

Waller acknowledges this as "welcome good news" but questions its conclusiveness, stating, "One month of good news does not constitute a trend.

" He awaits February employment and inflation data before the March 17-18 FOMC meeting to form a judgment on the labor market's true health and the appropriate monetary policy setting.

Overall economic activity shows solid growth, with Q4 2025 real GDP at 1.4 percent annually and private domestic final purchases increasing by 2.4 percent.

Business surveys indicate a January pickup, with manufacturing production rising 0.6 percent – its strongest in almost a year – and services activity increasing for the 19th consecutive month.

Waller notes that business investment is concentrated in data center construction, not representative of the broader economy.

Household spending, while "fairly solid," shows signs of softening among lower- and middle-income consumers.

Higher-income households, boosted by 2025 stock market gains, maintain resilient spending, creating a divergence in consumption patterns.