Fed Governor Waller dissents, urges policy rate reduction
Federal Reserve Governor Christopher J. Waller dissented at the most recent FOMC meeting, arguing for a 25 basis point cut to the policy rate. He cited a weak labor market and inflation running close to the 2 percent target (excluding tariff effects).
Zero job growth in 2025
Governor Waller highlighted the significant weakness in the labor market, noting that despite a recent tick down, the unemployment rate has risen since mid-2025. Payroll gains for 2025 were exceptionally weak, increasing by just under 600,000 jobs, a stark contrast to the prior ten-year average of about 1.9 million jobs created annually.
He anticipates downward revisions to 2025 data, likely showing virtually no growth in payroll employment for the year.
Waller emphasized that this does not resemble a healthy labor market, indicating considerable weakness in labor demand, with employers reluctant to hire.
He also mentioned hearing about planned layoffs in 2026, suggesting a substantial deterioration in the labor market is a significant risk that needs to be guarded against.
Looking through tariff effects
Waller argued that appropriate monetary policy should "look through" the elevated inflation caused by tariff effects, especially since inflation expectations remain anchored.
He stated that inflation, when excluding these tariff effects, is running close to the FOMC's 2 percent target and is on a path to sustainably reach that goal.
Given this, along with the weak labor market, Waller believes the policy rate should be closer to the median FOMC participant's estimate of a neutral setting at 3 percent, rather than the current 50 to 75 basis points above that level.
A timely call for easing
Governor Waller's dissent highlights a growing divergence within the FOMC regarding the appropriate policy stance.
His emphasis on labor market weakness, despite official narratives of resilience, offers a crucial counterpoint to the committee's current cautious approach.
This perspective underscores the risk of overtightening and the potential for a harder landing if policy remains restrictive for too long.