Waller backs 25 bps 'risk management' rate cut in December

• Key Insight: Fed Gov. Christopher Waller said quantitative and qualitative market indicators continue to point to a distressed labor market, justifying a near-term interest rate cut as a means to boost labor and consumer demand.
• Expert Quote: "This reading of the data leads me, at this moment, to support a cut in the [Fed's] policy rate at our next meeting on Dec. 9 and 10 as a matter of risk management." ? Fed Gov. Christopher Waller.
• What's at stake: Opinions among FOMC members on the appropriate path for monetary policy are highly divided, creating uncertainty on whether the Fed's rate-setting committee will move to cut rates in December.

Federal Reserve Gov. Christopher Waller said he intends to support a 25-basis-point cut to short-term interest rates at the Federal Open Market Committee's December meeting.

Speaking at an annual dinner hosted by the Society of Professional Economists in London, Waller said the labor market continues to show signs of distress, requiring the Fed's rate-setting committee to move monetary policy toward a more neutral stance.

Waller said that despite a lack of official labor market data, forecasts from both the public and private sectors show that economic activity is slowing and consumer sentiment is weakening.

"This reading of the data leads me, at this moment, to support a cut in the FOMC's policy rate at our next meeting on Dec. 9 and 10 as a matter of risk management," said Waller.

The Fed governor pointed to payroll figures from ADP, which show only 6,500 net jobs were created in September and October. That figure stands in contrast to the 22,000 jobs added to the economy in August, according to the Bureau of Labor Statistics.

"The latest weekly data are even weaker," Waller stressed.

He also cited a decline in job postings on job search site Indeed in October, and noted that a recent survey of large employers found they expect 2026 to be the "worst job market for new college graduates since the pandemic year of 2021, when the unemployment rate was around 6% at graduation time."

Waller added that in the past four weeks, his conversations with CEOs have suggested companies are starting to plan for future layoffs.

"It could be AI related. It could be a lot of other things," he said. "I've heard a lot more of this in the last four weeks and that's what got me more concerned. We should be paying more attention to the labor market."

Waller said arguments from some of his FOMC counterparts that the economy is performing well are short-sighted, because conditions are currently difficult for lower- and middle-income households.

"That's kind of where some of the disagreement comes in on the committee," he said. "People point to the financial markets and say, 'How can you say we're restrictive? Look at this stock market. Look at these bond markets,'" he said. "OK, it's loose for corporate America."

He specifically pointed to the financial squeeze of housing and cars on consumers, calling it "an ongoing challenge for consumers, especially lower- and middle-income consumers."

"When I go talk to households ? they can't get a house, they can't afford to buy a car anymore," Waller said. "This doesn't tell me financial conditions are loose for the American household."

Regarding inflation, Waller said he is not concerned, noting that tariffs will have a one-time impact and one that is not significant.

"Inflation through September continued to show relatively small effects from tariffs and support the hypothesis that tariffs are having a one-off effect raising price levels in the U.S. and are not a persistent source of inflation," he said.

Waller added that if anyone is worried about "groupthink" among Fed officials, the upcoming FOMC meeting will demonstrate how divided the committee is.

"Now on the groupthink thing, people who are accusing us of this: Get ready, you might see the least groupthink you've seen from the FOMC in a long time," he said. "That's apparently a good thing."