Chris Waller expressed support for considering a rate cut at the upcoming July meeting. He stressed that tariffs are unlikely to lead to sustained inflation, viewing them as a singular event. Waller suggested that the Federal Reserve should not wait for the job market to worsen significantly before initiating cuts. While acknowledging the strength of the current job market, he noted the potential for high unemployment among recent graduates.

The Fed’s Stand On Interest Rates

The Fed has held off on changes for six months, anticipating an inflation rise that has not occurred. Waller finds it wise to reduce rates and monitor inflation outcomes, asserting that even a 10% tariff on all imports would scarcely affect overall inflation. Waller’s comments imply a lean towards dovishness, indicating possible differences in opinions within the committee at the upcoming meeting. He stated, “I’m all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting because we don’t want to wait till the job market tanks before we start cutting the policy rate.” Waller is clearly becoming more comfortable with the idea of lowering the federal funds rate, and not because there’s a looming recession, but rather because inflation appears to be behaving better than expected. After half a year of caution and waiting, the bet that prices might take another leg up hasn’t materialised. Instead, inflation data has disappointed in the best possible way: by staying soft. Waller’s remarks point to a preference for moving in advance of labour weakness rather than reacting once deterioration is already under way. His suggestion that tariffs would only have a limited inflationary effect is a direct rebuttal of earlier concerns that trade actions would inevitably lead to persistent price pressures. This isn’t just wordplay—it’s about the Fed’s entire reaction framework. If they are not compelled to wait for clear pain in labour markets before reducing rates, then policy path expectations could shift materially.

Labour Market Concerns

The strength of this position rests on two assumptions: first, that inflation is unlikely to quickly rebound; and second, that front-loading cuts could avoid a sharper downturn later. What is particularly telling is not simply that a rate cut is being discussed, but that it’s potentially preferred in advance of any crisis in employment metrics. It suggests that Waller, and potentially others, trust the current downward trend in inflation more than they fear a sudden reacceleration. From our perspective, the path forward hinges heavily on whether this view finds broader agreement among voting members. If it does, the rates market will have to reprice the probability of easing coming as early as July. That re-pricing won’t happen in isolation. Eurodollar and SOFR futures, already poised for cuts later this year, would need to do more than price in nominal adjustments—they would need to shift expectations on volatility and future rate differences. We should keep in mind Waller’s specific mention of recent graduates potentially facing higher unemployment. Though not a driver of policy now, it may hint at a broader concern about generational disparities in labour market resilience. That’s something that doesn’t often appear in headline data, but it’s a pressure point the Fed may be starting to feel. One cohort’s struggles can sometimes foreshadow broader slack—we shouldn’t dismiss these signals lightly. So, what should we do with all of this? Watch for signs that assume a flat trajectory for rates over the summer; if more voices align with Waller’s stance, front-end volatility will shift, and the change may come faster than casual observers expect. Traders betting on the status quo, or expecting the Fed to wait for more labour deterioration, may find themselves offside. It’s also worth noting that pricing power in the fixed income volatility space, particularly in the very short end, could be sensitive to this shift in sentiment. There’s a marked difference between a central bank responding to deteriorating data and one that decides to pre-empt softness. That changes how we think about the next few plans and what the committee may want to signal—or leave unsaid. The upshot is that we’ve moved from a period where rate cuts were conditional to a period where they may be justified outright. Whether that transition completes in July or September is now an open and very tradable question. สร้างบัญชี VT Markets ของคุณแบบสด และ เริ่มเทรด ตอนนี้

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