FED: Dovish Waller Doubles Down On July Cut, More Cuts This Year

In case missed late yesterday, Governor Waller (permanent voter, dove) clearly doubled down on his dovish stance, starting his speech with “My purpose this evening is to explain why I believe that the FOMC should reduce our policy rate by 25 basis points at our next meeting.” It’s not a new approach from Waller but continues to stand out along with Bowman amidst the Fed’s independence being threatened by President Trump’s call for 1% rates. For context, see FED: Waller Sees Rate Cuts As Early As July, Pushing Back On Powell (Jun 20) and FED: Bowman And Waller Setting Up For A July Dissent (Jun 23). Waller is seen as very likely one of the two June SEP dots for three cuts this year, with a particularly divided FOMC considering there were also seven dots looking for zero cuts. The market still views July cut calls as posturing, with just 0.5bp priced. 

Excerpts from the speech (found in full here): 

• "The risks to the economy are weighted toward cutting sooner rather than later. If the slowing of economic and employment growth were to accelerate and warrant moving toward a more neutral setting more quickly, then waiting until September or even later in the year would risk us falling behind the curve of appropriate policy."
• If headline inflation data report modest, temporary increases from tariffs that are not unanchoring inflation expectations and the economy continues to grow slowly, he would support "further 25 basis point cuts to move monetary policy toward neutral" later this year.
• “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%. While I sometimes hear the view that policy is only modestly restrictive, this is not my definition of 'modestly.'"

Subsequent Q&A (from Bloomberg headlines): 

• Want to cut rates to give a little more stimulus
• Nothing wrong with taking out an insurance cut
• Evidence suggests the neutral rate isn’t far from 3%
• The Trump administration hasn’t talked to be about the Fed chair job