Christopher J. Waller, member of the Board of Governors of the Federal Reserve System, recently addressed the Money Marketeers of New York University, to discuss why he feels the Federal Reserve should “reduce its policy rate by 25 basis points” at the next meeting of the Federal Open Market Committee (FOMC).
Waller’s opinion differs from that of Federal Reserve Chair Jerome Powell, who has come under scrutiny of late from the Trump administration for holding rates at 4.25%-4.50% at the last meeting of the FOMC in June.
The FOMC, who will meet again July 29-30, oversees and directs the nation’s monetary policy to in order to promote maximum employment, stabilize prices, and bring moderation to long-term interest rates. The FOMC achieves this by influencing the availability and cost of money and credit.
Waller took office as a member of the Board of Governors of the Federal Reserve System on December 18, 2020, to fill an unexpired term ending January 31, 2030. Prior to his appointment on the Board, he served as EVP and Director of Research at the Federal Reserve Bank of St. Louis since 2009. In addition to his experience in the Federal Reserve System, Waller served as a Professor and the Gilbert F. Schaefer Chair of Economics at the University of Notre Dame. He was also a Research Fellow with Notre Dame’s Kellogg Institute for International Studies.
From 1998-2003, Waller was a Professor and the Carol Martin Gatton Chair of Macroeconomics and Monetary Economics at the University of Kentucky. During that time, he was also a Research Fellow at the Center for European Integration Studies at the University of Bonn. From 1992-1994, he served as Director of Graduate Studies at Indiana University’s Department of Economics, where he also served as Associate Professor and an Assistant Professor.
“Real gross domestic product (GDP) growth was likely around 1% in the first half of this year, and is expected to remain soft for the rest of 2025, much lower than the median of FOMC participants’ estimates of longer-run GDP growth,” added Waller. “Meanwhile, the unemployment rate is 4.1%, near the Committee’s longer-run estimate, and headline inflation is close to our target at just slightly above 2% if we put aside tariff effects that I believe will be temporary. Taken together, the data imply the policy rate should be around neutral, which the median of FOMC participants estimates is 3%, and not where we are—1.25 to 1.50 percentage points above 3%.”
Waller isn’t the only Fed official who has called for a rate cut at the next meeting of FOMC. Fed Vice Chair for Supervision Michelle Bowman recently said the Fed could begin cutting rates as soon as July, though she hasn’t reiterated that position since the latest government data showed Americans are still spending and businesses are still hiring.
Throughout his speech, Waller frequently referred to the Trump administration’s tariffs as a focal point, as their impact on the nation’s economy begins to take shape. ABC News reports that commonly imported products like clothes, furniture and bed linens were among the goods that jumped in price last month as tariffs took hold, while the price of toys—a product highly dependent on imports—increased six times faster in June than it had just two months prior.
“The key question for monetary policy right now is what we can discern about the underlying rate of inflation—that is, the rate excluding tariffs—based on the fundamentals of the economy,” said Waller. “Federal Reserve Board staff has done work to try to estimate tariff effects on personal consumption expenditure (PCE) prices. Using that methodology, if I subtract estimated tariff effects from the reported inflation data, I find the inflation numbers for the past few months would have been quite close to our 2% goal. You’re not going to hear ‘mission accomplished’ from me, but what this tells me is that underlying inflation has been lower than what is reported and close to our objective. Besides tariffs, I don’t expect an undesirable, sustained increase in inflation from other forces.”
Powell as well recently commented that President Trump’s tariffs will come into play in dictating the future of the nation’s economy during a recent appearance before the House Financial Services Committee and Senate Banking Committee.
“The effects on inflation could be short lived—reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent,” said Powell during his testimony. “Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored.”
Fed Governor Adriana Kugler at a recent D.C. event said that the Federal Reserve should stand pat “for some time” because inflation has begun to pick up on Trump’s tariffs, and “given the stability in the employment side of our mandate.”
“I believe it makes sense to cut the FOMC’s policy rate by 25 basis points two weeks from now,” said Waller. “And looking to later this year, if, as I expect, underlying inflation remains in check—with headline inflation data reporting modest, temporary increases from tariffs that are not unanchoring inflation expectations—and the economy continues to grow slowly, I would support further 25 basis point cuts to move monetary policy toward neutral.”
Click here to read Christopher Waller’s entire speech before the Money Marketeers of New York University.
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