MNI BRIEF: Fed's Waller Wants More Rate Cuts At Moderate Pace

The Federal Reserve should continue cutting interest rates at a moderate pace with inflation cooling and effectively zero job growth and a "very soft" labor market, Fed Governor Chris Waller said Wednesday, adding rates are still 50 to 100 bps above neutral. 

"If I believe inflation is under control, inflation expectations are anchored, standard central bank wisdom is you look through one-off price effects like a tariff would be if it has inflation effects. Then the labor market's telling you we should continue cutting the rates," he said at a Yale University CEO Summit event in New York.

"We're not seeing a dramatic decline of labor market going off a cliff, right, just continuing to just soften and soften. So we can go in a moderate pace. I don't think we have to do anything dramatic." (See: MNI: Fed Biased To Ease With Focus On Jobs - Ex-Officials)

The FOMC cut its policy rate for a third straight meeting last week on worries that the labor market is softening. The unemployment rate rose to 4.6% in November, and job growth is close to zero if accounting for anticipated downward revisions by the Bureau of Labor Statistics, Waller said. The stall in hiring could be temporary as firms wait out trade uncertainty and figure out how to add AI to their business, he said. 

Inflation could be stickier for longer but won't reaccelerate, Waller said. "There's no forces that are suggesting that inflation is going to take off again in 2026. If anything, the tariff effects, whatever they may be, those will start coming off as a one-time price effect."