The Federal Reserve Board of Governors Waller expressed support for a rate cut in December, citing a weak labor market as a key reason.

According to a report by Reuters, Federal Reserve Board of Governors member Christopher Waller clearly supported another interest rate cut in December during a speech in London in November 2025, pointing out that increased discussions of corporate layoffs and the labor market approaching a “stall speed” were the main basis for his policy stance. Although the inflation rate excluding tariff impacts is only less than 0.5 percentage points above the 2% target, there are serious divisions within the Fed, with several regional Fed presidents opposing further easing.

Due to the lack of official data caused by the government shutdown, Waller relies on alternative indicators such as ADP employment data, state unemployment claims, and consumer surveys for decision-making, believing that the Fed is not in a “fog.”

Labor Market Transition and Policy Logic

Waller revealed key signals of a policy shift in his speech to the London Society of Professional Economists. Unlike the “no hiring and no layoffs” stance from 4-6 weeks ago, corporate executives have begun frequently discussing layoff plans, which may stem from productivity gains brought about by artificial intelligence or expectations of reduced demand.

Waller emphasized: “This is not just a matter of 'no hiring and no layoffs.' At some point, this situation will begin to occur.” He suggested that the Fed pay more attention to labor market risks and approve another 25 basis point rate cut at the policy meeting on December 9-10. This stance is based on his assessment that the labor market “remains weak and is approaching stagnation speed,” while state-level unemployment claims have risen slightly, layoffs have increased, and there is no evidence that wage pressures are building.

The Dilemma of Inflation Assessment and Policy Balancing

Despite weak signals in the labor market, Waller is relatively optimistic about the inflation situation. He believes that after excluding the temporary effects of tariffs, the inflation rate may be only less than 0.5 percentage points higher than the Fed's target of 2%, and it should continue to decline. This assessment stands in stark contrast to the hawkish views within the Fed—several regional Federal Reserve Bank presidents believe that inflation has not changed much over the past year and is still nearly 1 percentage point above the target, so the Fed should stop cutting interest rates.

Fed Vice Chairman Philip Jefferson agreed that there are risks in the labor market, but still advocated that the Fed should “proceed slowly” with any further rate cuts. This divergence makes the December meeting likely one of the most controversial policy decisions in recent years.

Decision Challenges in the Face of Data Gaps

The current policy debate at the Federal Reserve is taking place in a unique environment marked by the absence of official government economic statistics, which have been delayed due to the recent 43-day government shutdown. Waller believes this difficulty has been exaggerated, and the Fed is not in a “fog” that requires delaying interest rate cuts until the situation becomes clearer. Instead, “we have a wealth of private sector and some public sector data that provides an imperfect but fully actionable picture of the U.S. economy.”

He cited information such as ADP employment data, unemployment claims from various states, and surveys from the World Federation of Large Enterprises and the University of Michigan. This reliance on alternative data sources is rare in the history of the Fed and adds uncertainty to policy decision-making.

key arguments of Waller's policy stance

• Labor Market: Approaching stagnation speed, discussions of layoffs increasing
• Inflation Assessment: Approaching the 2% target after excluding tariff factors
• Data Source: ADP Employment, State Unemployment Claims, Consumer Survey
• Policy Recommendation: Another 25 basis point rate cut in December
• Risk Balance: Focus more on the downward trend in employment rather than the upward trend in inflation.

Internal Policy Discrepancies and Leadership Challenges

Waller acknowledged that there are exceptionally deep divisions within the Federal Reserve, a situation that is particularly sensitive in the context of President Trump considering the possibility of serving as Chair of the Fed. He pointed out that while differing opinions within the decision-making body are healthy, a policy voting result that is too “slim” may undermine investors' ability to set accurate interest rate path expectations. “This may be the least groupthink you have seen from the FOMC in a long time,” Waller said regarding the Federal Reserve's rate-setting committee, which has 12 policy makers with voting rights, “If the result turns into 7 to 5, and then someone changes their position at the next meeting, the entire trajectory changes. This is dangerous… it cannot give people confidence in the policy path.”

Economic Vulnerability and Policy Insurance Logic

Waller expressed concern about the economic slowdown indicated by the decline in consumer confidence and the strain on household budgets caused by housing and other major costs. “I worry that restrictive monetary policy is weighing on the economy, particularly how it affects middle- and lower-income consumers,” Waller said, “A rate cut in December would provide additional insurance against a rapid softening of the labor market and shift policy toward a more neutral setting.”

This “insurance-style interest rate cut” logic is similar to the policy framework in 2019, when the Federal Reserve conducted three preemptive rate cuts in the third quarter. It is worth noting that the government shutdown has delayed the release of key economic data, including the September employment report scheduled for release on Thursday, and the subsequent release of this data may further impact policy expectations.

Market Impact and Investment Strategy Insights

Weller's dovish remarks have had a direct impact on the market. Federal funds futures indicate that the probability of a rate cut in December has risen from 44% before the speech to 58%, and the yield on two-year Treasury bonds has fallen by 8 basis points to 3.92%. Interest-sensitive tech stocks and the cryptocurrency market may gain support, as historical data shows that the early stages of a shift in Fed policy usually benefit growth assets.

The dollar index in the foreign exchange market fell from 106.2 to 105.6, easing pressure on emerging market currencies. For investors, it is advisable to closely monitor the delayed economic data to be released in late November, particularly the employment and inflation indicators, as this data may confirm or refute Waller's assessment of economic weakness.

Making monetary policy decisions during a data vacuum is like navigating through fog; it tests not only the precision of navigation tools but also the courage and judgment of the helmsman. Waller's advocacy for interest rate cuts is based not only on his interpretation of economic data but also on his understanding of the nature of monetary policy—sometimes, in an uncertain environment, preemptive insurance is needed rather than a delayed reaction. The outcome of this policy debate will determine whether the U.S. economy achieves a soft landing or encounters an unnecessary hard landing.

FAQ

What is Waller's main reason for supporting a rate cut in December?

Waller pointed out that companies are starting to discuss layoff plans, the labor market is approaching “stagnation speed,” and inflation, excluding tariff effects, is close to the 2% target, suggesting that preventive interest rate cuts are needed to avoid economic deterioration.

How much disagreement exists within the Federal Reserve regarding interest rate cuts?

The divergence is quite evident, with several regional Fed chairmen opposing further rate cuts, believing that inflation remains elevated. Although Vice Chairman Jefferson acknowledges the risks in the labor market, he advocates for a gradual approach. Weller is concerned about a possible weak voting outcome of 7-5.

How Does a Government Shutdown Affect Fed Decisions?

Due to the delay in official data caused by the 43-day government shutdown, the Fed has increased the uncertainty in decision-making by relying on alternative indicators such as ADP employment data, unemployment claims from various states, and consumer surveys.

How does Waller assess the current inflation situation?

He believes that after excluding the temporary effects of tariffs, the inflation rate may be less than 0.5 percentage points above the 2% target and should continue to decline, without concerns about accelerating inflation or a significant rise in inflation expectations.

How did the market react to Weller's speech?

Federal funds futures indicate that the probability of a rate cut in December has increased from 44% to 58%. The yield on two-year Treasury bonds has decreased by 8 basis points, the dollar index has fallen, and growth assets and cryptocurrencies have found support.