The Fed interest rate cut debate gained momentum after Federal Reserve Governor Christopher Waller shared his views. He believes the central bank could begin lowering rates as soon as next month. This stance differs from the current pause maintained by the Federal Reserve this year.
So far, the Fed has kept interest rates steady throughout 2025. The benchmark rate remains between 4.25% and 4.5%, unchanged for four consecutive meetings. Fed Chair Jerome Powell stated the central bank is carefully watching inflation data and labor market trends amid ongoing economic uncertainties.
In contrast, Waller argues the Fed should not wait for the labor market to weaken before acting. He said, “If you worry about downside risks to jobs, act now rather than later.” He emphasized the importance of moving early to avoid a sharp economic downturn.
Waller suggests the Fed should consider starting rate cuts in July, though he acknowledged the committee may not agree. He supports beginning the easing process gradually to prevent surprises. “We have paused for six months to evaluate data, and now might be the right time to adjust policy,” Waller added.
Powell described the Fed’s current policy stance as appropriate to respond swiftly to changes. He also mentioned that employment levels are near maximum, while inflation remains slightly above the 2% target. Waller believes tariffs and trade policies may have limited long-term inflation effects, calling them a “one-off” factor.
President Donald Trump has criticized the Fed’s reluctance to cut rates amid trade tensions. He called Chair Powell a “numskull” while pushing for lower borrowing costs to support the economy.
Following Waller’s remarks, markets slightly increased the chances of a rate cut in July. The CME FedWatch tool raised the probability from 12.5% to 14.5%, signaling cautious optimism among investors.
Overall, the Fed interest rate cut conversation shows growing division within the central bank. As economic risks evolve, officials will continue to debate the best path forward for monetary policy.
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