Headline: Waller Flags Labor Market Strain, Backs December Rate Cut as Reserves Tighten
The Federal Reserve’s Christopher Waller signaled growing concern over a cooling job market and said the case for monetary policy easing remains intact. He supports a 25-basis-point rate cut at the December 9–10 meeting, while cautioning that one move alone is unlikely to restore the robust job growth seen earlier in the cycle.
Waller emphasized that labor market weakness is the dominant risk, outweighing a mild overshoot in inflation. Survey indicators point to rising layoff plans, and companies report that lower- and middle-income households are pulling back on spending, pressuring hiring. Some firms are also financing artificial intelligence initiatives by freezing recruitment. He noted that a meaningful rebound in employment would reduce the need for further “insurance” cuts, but current signals point the other way.
On the balance sheet, Waller said the Fed’s current size is broadly appropriate. However, rising market rates suggest bank reserves are nearing scarcity. He expects natural demand for reserves to lift the balance sheet again and indicated the Fed could be a month or two away from needing to expand it. Waller declined to weigh in on political commentary about interest rates.
Key Points: – Waller prioritizes labor market weakness over a modest inflation overshoot. – Backs a 25bp rate cut at the December 9–10 FOMC meeting. – Survey data show rising layoff plans and softer spending by lower- and middle-income households. – Some businesses are funding AI investment by pausing hiring. – Reserves appear to be nearing scarcity; the Fed may need to grow its balance sheet within one to two months. – One 25bp cut is unlikely to restore prior levels of job growth, suggesting more easing could be needed.
