July Rate Cut Now Has Single Fed Vote

Fed Governor Christopher Waller was crystal clear in a speech on Thursday that he would like the Fed to cut rates in July. Importantly, consider the first line of his speech at NYU:

My purpose this evening is to explain why I believe that the Federal Open Market Committee (FOMC) should reduce our policy rate by 25 basis points at our next meeting (July 30th).

As we share below, investors place the odds of a July rate cut at a mere 4.7%. Moreover, no other Fed members have called for a rate cut in July. Let’s examine Waller’s speech and highlight a few reasons he believes a July rate cut is necessary.

Tariffs do not cause inflation.

“Tariffs are one-off increases in the price level and do not cause inflation beyond a temporary surge. Standard central banking practice is to “look through” such price-level effects as long as inflation expectations are anchored, which they are.”

Weakening Labor Market: He thinks the labor market looks “fine on the surface,” but BLS data revisions and non-BLS data point to downside risks. Notably, ADP has shown no growth in the last three months.

Rates Are Too Restrictive: Real GDP growth is running around 1% and he expects similarly slow activity in the second half. Combined with a weak labor market and transitory tariff-related inflation, he states:

Taken together, the data imply the policy rate should be around neutral, which the median of FOMC participants estimates is 3 percent, and not where we are, 1.25 to 1.50 percentage points above 3 percent.