Overview

• Governor Christopher Waller said he would support a 25-basis-point reduction at the Sept. 16–17 FOMC meeting and he anticipates additional cuts over the next three to six months.
• He indicated no need for a larger move next month unless the August jobs report shows a substantially weaker economy with inflation still contained.
• Waller argued policy should begin moving toward a more neutral stance about 1.25 to 1.50 percentage points below the current 4.25%–4.50% federal funds rate range.
• His case rests on weakening labor data, including just 73,000 jobs added in July with sizable downward revisions and a 4.2% unemployment rate, echoing Chair Jerome Powell’s recent focus on labor risks.
• Traders assign better than an 85% probability to a September cut as officials await key reports on PCE inflation (Aug. 29), August employment (Sept. 5) and CPI (Sept. 11), with political pressure on the Fed also in the spotlight.