FED: Gov Waller: Labor Market Not Tight, But Notable GDP Vs Payrolls Disconnect

In his first comments on monetary policy since the September FOMC meeting, Gov Waller (dove, permanent FOMC voter and reportedly a Fed Chair finalist) interviewed on CNBC Friday unsurprisingly affirmed his view that the Fed should follow through with a series of cuts in light of developing labor market weakness (saying the labor market is "not tight in any way, shape or form"). While it's clear he's among the most dovish members on the Committee, eyeing 2 more rate cuts this year, he doesn't advocate too aggressive an easing: "I'm still in the belief we need to cut rates, but we need to kind of be cautious about it." 

• He elaborates: "You're seeing this very weak labor market, but GDP growth seems pretty good", and if growth is as close to 4% as forecast by some "you can't have negative job growth". As such, "something's got to give - either the labor market rebounds to match the GDP growth, or that GDP growth is going to pull back. So whichever way that goes, it's got to affect what you do with policy....So that's where the caution comes in ... we want to move in a certain direction. I want to move towards cutting rates, but you're not going to do it aggressively and fast, in case you make a big mistake on which way things go."
• Re markets pricing sequential cuts: "That's fine. That's what the SEP kind of signals". And asked whether a 25bp cutting pace was appropriate: "yeah, because you can always adjust as you go, as the data comes in. If you went 75 tomorrow, then you have a bit of a problem."
• Within the labor market data itself, he points to a variety of indicators as evidence that the labor market is not tight, mitigating risks of second-round inflation effects from tariffs: "If you have negative job growth, that's not maximum employment when you're shrinking your hiring. If there truly were shortages [in the labor market], then you would see wages going up, vacancies would be going up. Lots of things would be signaling a tight labor market. None of that exists in public data, government data, or in the private sector data. So the labor market is not tight in any way, shape, or form. And if that's the case, you're not going to get the typical thing that people are afraid of with, like tariff type inflation, is that there's a second round knock on effect."
• Asked about Gov Miran's view that there was no evidence tariffs were generating inflation, Waller disagrees: "No, we see we see it in various measures", and notes that there's about a 40% passthrough of tariffs to consumers, but reiterates that they should have a one-off impact on the price level.
• Waller wasn't particularly concerned about a lack of data availability in the government shutdown, with his philosophy being: "use what you have when you have it".