Fed’s Waller Says Economy Feeling The Squeeze — Upcoming Jobs Data Won’t Dissuade Him From Bating For December Rate Cut

• Waller wasn’t worried about inflation accelerating or inflation expectations rising significantly.
• He noted that slowing labor demand was underscored in surveys of employers and workers.
• The next Federal Open Market Committee (FOMC) meeting is scheduled for Dec. 9-10.

Federal Reserve Governor Christopher Waller, who has been in the dovish camp, made the case for a central bank interest rate cut while speaking at the annual meeting of the Society of Professional Economists in the U.K. late Monday.

The stock market has become jittery lately at the prospect of the Fed pausing after delivering two quarter-point rate cuts this year. The  SPDR S&P 500 ETF (SPY), an exchange-traded fund that tracks the S&P 500 Index, and the Invesco QQQ Trust (QQQ) ETF, which tracks the Nasdaq 100 Index, ended Monday’s session down 0.93% and 0.85%, respectively.

These ETFs, however, are up 14.5% and 18.5%, respectively, year-to-date.

Not Worried About inflation

Waller wasn’t worried about inflation accelerating or inflation expectations rising significantly, and instead chose to put the focus on the labor market. He noted that the 12-month consumer price index inflation through September was 3%, and the estimate for the inflation measure based on personal consumption expenditure (PCE) was about 2.8%, with the effects of President Donald Trump's tariffs being smaller than expected. Despite inflation running above target for five years, inflation expectations are well-anchored in the medium- and long-term, he said.

The Fed governor said, “With the evidence of slower economic growth and the prospect of only modest wage increases from the weak labor market, I don't see any factors that would cause an acceleration of inflation.”

Demand-Driven Labor Market Softening

Waller pointed to government labor market data released up until the shutdown, which showed that job creation stalled from May through August. He expects that employment may have actually fallen during that period, based on the expected revisions period. Turning to the ADP private payrolls data that was subsequently released, he said businesses created a net total of only 6,500 jobs per month in September and October.

He noted that slowing labor demand was underscored in surveys of employers and workers, citing the Conference Board’s index of job availability and the National Federation of Independent Business (NFIB) survey.

To make his case, Waller also referred to the series of government data that showed that “continuing state-level claims for unemployment benefits have risen, on net, in recent weeks and are running above levels in 2023 and 2024.”

He believes that businesses are actively cutting jobs or allowing the labor force to fall by attrition due to the actual or anticipated productivity gains from artificial intelligence. He views the current softening as a function of demand rather than a supply issue.

The Fed official said, “After months of weakening, it is unlikely that the September jobs report later this week or any other data in the next few weeks would change my view that another cut is in order.”  

He expressed concerns about the restrictive monetary policy weighing on the economy, especially regarding its impact on lower- and middle-income consumers. The Fed governor viewed that a “December cut will provide additional insurance against an acceleration in the weakening of the labor market and move policy toward a more neutral setting.”

The next Federal Open Market Committee (FOMC) meeting is scheduled for Dec. 9-10. The meeting will also feature the release of the Summary of Economic Projections (SEP), which comprises the central bank’s updated economic projections, as well as the dot-plot curve, a graphical representation of the Fed officials’ expectations for the rate trajectory.

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