Fed Governor Christopher Waller on July 17 in New York did what many monetary authorities find psychologically harder than raising rates: he clearly and without diplomacy called for a reduction in the target range for federal funds at the upcoming FOMC meeting (July 29-30) by 25 basis points. His position is based on three pillars — tariffs create only a one-time price shock, the economy is noticeably slowing down, and the labor market is beginning to show alarming signals. Waiting for the situation to worsen, in his opinion, is unreasonable.

The heart of the argument is the discrepancy between the current policy tightness and the neutral level: the range of 4.25–4.50% is about 125–150 basis points above the median long-term estimate (r* around 3%) in the June forecasts. According to Waller, this does not qualify as 'moderately restrictive.' With inflation close to target (if we exclude tariff noise) and no signs of overheating in the labor market, there is no reason to maintain such a gap — it is too much of a strain on demand.

The Bureau of Economic Analysis recorded a decrease in real GDP in the US in Q1 2025 at an annual rate of -0.5% after +2.4% in Q4 2024, mainly due to a rush in imports ahead of a wave of tariffs. Reuters confirms this picture and notes a slowdown in consumer activity. President of the New York Fed John Williams on July 16 stated that he expects GDP growth of around 1% for the entire year of 2025 — the pace of slowdown has already become official rhetoric within the Fed.

The GDPNow model from the Atlanta Fed on July 18 estimates Q2 growth at 2.4% (SAAR). If we average -0.5% in Q1 and +2.4% in Q2, the average for the half-year is about 1% — exactly the figure Waller mentioned. But these calculations remain preliminary: the official estimate for Q2 will be released on July 31.

Consumer activity is also losing momentum: the June retail sales report showed growth, but after several weak months. Part of the demand was 'pulled' forward due to fears of tariff increases. Williams directly links the acceleration of prices in import-dependent segments to tariffs and warns that their effect will intensify.

The labor market appears stable on the surface, but deeper down, there are alarming signals. In June, the economy added 147,000 jobs, with unemployment at 4.1%, but almost half of the increase came from the public sector. The private sector added only 74,000, and ADP data even showed a decrease of 33,000. Waller emphasizes that it is the private sector that reflects cyclical changes, and its dynamics indicate a 'stall speed.'

The situation is exacerbated by possible revisions of statistics. Waller estimates that private payrolls may be overstated by about 60,000 per month since March 2024, which effectively makes the June increase close to zero. Adding to this is the rise in unemployment among college graduates to 5.8% — the highest in 10 years — and the labor market picture no longer looks favorable.

Inflation is moderately above target: the CPI for June is around 2.7% headline and 2.9% core, but a significant part of this increase is explained by tariffs. Research from the HBS Pricing Lab confirms that consumers are only facing part of the tariff price increase (about a third), and the effect on prices is gradually dissipating. Waller insists: tariffs are not a sustainable driver of inflation, and monetary policy should 'look through' such shocks.

For investors, the signal is important: if the Fed softens in July, it will increase interest in risk assets. Cryptocurrencies, as studies from CME and Binance Research show, often respond to Fed decisions more strongly than traditional assets: when policy is eased, interest in BTC and altcoins rises, and the stablecoin market receives additional momentum due to the declining cost of dollar funding.

The conclusion is simple: Waller suggests not to panic, but also not to wait until the labor market starts to turn down. His logic is to ease pressure now while inflation is close to target, and the risks of economic slowdown have not turned into a recession. For markets, this is a chance to reformat expectations and switch to 'risk-on' mode. The next PCE report and employment data will determine whether the Fed's July move will mark the beginning of a series.