Fed Governor Waller sees more rate cuts but says central bank needs to be ‘cautious about it’

Federal Reserve Governor Christopher Waller said Friday that he continues to support lowering interest rates but said the central bank needs to be careful amid conflicting economic signals.

“I’m still in the belief we need to cut rates, but we need to kind of be cautious about it,” Waller said during an interview on CNBC’s “Squawk Box.”

On one hand, he said, the U.S. labor market appears to be losing jobs, potentially signaling a broader economic slowdown. On the other, gross domestic product growth remains strong and there remain concerns over inflation, which is still running considerably higher than the Fed’s 2% goal.

“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,” Waller said. “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 that things go.”

At its September meeting, the rate-setting Federal Open Market Committee approved its first quarter percentage point reduction since December 2024. In addition, committee members signaled in their quarterly “dot plot” update of individual members’ expectations that two more cuts were likely before the end of the year.

Waller said he’s comfortable with that pace but doesn’t think the Fed should move faster than that. His new colleague, Governor Stephen Miran, appointed by President Donald Trump, pushed for a bigger half-point reduction and wants to see the Fed lop another 1.25 percentage points off the federal funds rate by the end of the year.

“You can always adjust as you go as the data comes in,” Waller said. “I mean, if you went 75 [basis points] tomorrow, then you have a bit of a problem.”

The monetary policy comments came shortly after a CNBC report that Waller is one of five finalists to replace Fed Chair Jerome Powell when his term expires in May 2026. Waller recently interviewed with Treasury Secretary Scott Bessent, who in turn is sending a list to Trump of the best candidates to lead the central bank.

As part of the process, Waller sat down for what were reportedly lengthy interviews as Trump looks for a central bank more in his liking for lower interest rates. However, Waller said the discussion with Bessent focused squarely on policy.

“It was actually a great interview. I mean, it was a lot of discussion about various aspects of the Fed, talking about various speeches I’ve given my points of view,” Waller said. “I just thought it was great. I mean, really there was nothing political about it. It was all serious economic discussion.”

Waller’s cautious views on policy extend to the economy.

On the labor market, he said the past few months probably saw a loss of jobs. On inflation, Waller said he continues to think the impact from Trump’s tariffs will be temporary.