September FOMC meeting poised to set new direction for Fed
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Key Message
Governor Christopher Waller has called for a 25 basis point cut in interest rates at the September 16-17 FOMC meeting. He cautioned that the U.S. labor market could weaken rapidly and stressed that the Fed must not fall behind the curve. Waller also indicated support for further reductions over the next three to six months. (Source: Reuters)
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Labor Market Concerns
According to Waller, the job market is already showing signs of stress. He warned that conditions could deteriorate quickly, which is why the Fed should act preemptively rather than waiting for job losses to accelerate before responding.
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Interest Rate Outlook
The current policy rate stands at 4.25%–4.50%. Waller said that a more neutral stance would be about 1.25 to 1.50 percentage points lower. While he expects a modest 25 basis point cut in September, he left the door open for further easing depending on incoming economic data.
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Inflation Context
Inflation, excluding temporary tariff effects, is running close to the Fed’s 2% goal. Longer-term expectations remain stable, and Waller sees little evidence of runaway price pressures. This, he argued, provides the Fed with space to begin reducing rates.
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Dissent within Fed
Waller, along with Governor Michelle Bowman, dissented in the July policy decision where rates were left unchanged. Both voiced concerns about the labor market’s weakening trend. Interestingly, both are also seen as potential successors to Chair Jerome Powell.
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Political Pressure
President Trump has been publicly pressing the Fed for deeper and faster rate cuts. This week, he fired Governor Lisa Cook over alleged misconduct, a move Cook is challenging in court. Analysts say these developments show increasing political pressure on the Fed’s independence.
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Powell’s Position
Fed Chair Jerome Powell recently acknowledged the slowdown in job growth, which has dropped to an average of just 35,000 per month since May. Even though unemployment remains at 4.2%, Powell said rising downside risks may justify cautious adjustments in policy.
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Market & Analyst Reactions
Financial markets are now widely expecting a rate cut in September, with many analysts predicting a gradual easing cycle afterward. Waller’s remarks strengthened the view that front-loaded action may be necessary to support growth and prevent deeper job losses.
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Key Takeaways
Waller’s comments mark a clear shift toward monetary easing. The Fed now faces the challenge of balancing the risks of a weakening labor market against the threat of inflation from tariffs. The September FOMC meeting is expected to set the tone for the Fed’s policy path in the months ahead.
(Disclaimer: This slideshow has been sourced from Reuters)
(Disclaimer: This slideshow has been sourced from Reuters)