Federal Reserve Governor Waller supports a rate cut in December, while Vice Chairman Jefferson emphasizes a cautious and gradual approach to policy

On Monday, Christopher Waller, a popular candidate for the next Chair of the Federal Reserve and current Fed Governor, stated that he supports another interest rate cut at the Fed's December meeting due to concerns about the labor market and a significant slowdown in hiring.

In a preparatory speech delivered in London to a group of economists, Waller said:

"I am not worried about accelerating inflation or a significant rise in inflation expectations. My concern is the labor market. After months of weakening, I believe that the September employment report, which will be released later this week, or any other data in the coming weeks, is unlikely to change my view that another rate cut is necessary."

Waller explicitly stated that he supports a 25 basis point rate cut. Another Fed Governor, Stephen Miran, who was also appointed by President Trump, has leaned towards a 50 basis point cut in the previous two meetings.

Although Waller has repeatedly voiced support for rate cuts in recent months, he has also updated his views based on the latest circumstances. Due to the recent government shutdown leading to missing official data, he cited several private and a few public sector indicators that show weak labor market demand and consumer pressure.

Meanwhile, he indicated that price data suggest tariffs will not have a lasting impact on inflation. Another rate cut would be a "risk management" measure. Fed Chair Jerome Powell has frequently used this phrase in recent years.

Waller said:

"I am concerned that tight monetary policy is weighing on the economy, particularly its impact on middle- and low-income consumers. A rate cut in December would provide additional assurance against further deterioration in the labor market and move policy towards a more neutral stance."

Waller denied external claims that the Fed is "flying blind" (i.e., making policy decisions without data support) during the government shutdown:

"Despite the government shutdown, we still have a wealth of private and some public sector data, which, while not perfect, is sufficient for us to make actionable judgments about the U.S. economy."

Fed Vice Chair Emphasizes Caution, Does Not Provide Clear Rate Cut Stance

On Monday, Fed Vice Chair Philip Jefferson stated that he believes the downside risks to employment have increased, but he also reiterated that as interest rates approach neutral levels, decision-makers need to be more cautious and proceed gradually:

"I believe that the balance of risks in the economy has shifted over the past few months, with downside risks to employment having increased, while upside risks to inflation may have slightly decreased recently."

Jefferson noted that although he expects the unemployment rate to rise slightly before the end of the year, existing information indicates that the labor market is gradually cooling—both on the demand and supply sides. Regarding inflation, Jefferson pointed out that progress towards the Fed's 2% inflation target seems to have stalled, which may reflect the impact of tariffs. He said:

"The lack of further progress seems to stem from tariff effects, and if we exclude tariff factors, inflation may still be continuing to converge towards 2%. A reasonable baseline judgment is that tariffs have caused a one-time increase in price levels, rather than creating a persistent inflation problem." In terms of policy outlook, Jefferson stated that it is unclear how much official data can be grasped before the December FOMC monetary policy meeting, and he will base his policy decisions on data, making decisions at each meeting. "At this point, this is a particularly cautious approach."

Deep Divisions Within the Federal Reserve

Federal Reserve officials lowered the benchmark interest rate by 25 basis points last month, reflecting their ongoing concerns about the labor market. Fed Chairman Powell told reporters after the meeting that another rate cut in December is "not a done deal." Following recent hawkish remarks from other officials, market bets on a rate cut in December have significantly decreased from nearly 100% before the October meeting to about 40%, according to federal funds futures data.

The next FOMC meeting will be held on December 9-10. The market is divided on how the committee will act after cutting rates by 25 basis points in both September and October.

Within the increasingly divided Federal Reserve:

• Waller's remarks clearly place him in the camp hoping to avoid further deterioration of the U.S. job market through easing monetary policy.
• Jefferson remains cautious about the December FOMC meeting, only stating that the current economic environment requires decision-makers to "proceed slowly" when considering further rate cuts. His remarks indicate that he is open to the question of "whether to cut rates further or maintain rates" at the next Federal Reserve meeting on December 9-10.
• Meanwhile, other senior Fed officials, including several regional Fed presidents, have recently opposed further rate cuts, as they believe inflation remains a persistent economic threat and further easing could reignite inflationary pressures