Federal Reserve Governor Christopher Waller has indicated that the central bank’s decision on interest rates in March could hinge on the upcoming labor market data. A strong February jobs report might lead to holding rates steady, while a weaker report could prompt a rate cut, a scenario Waller described as a “coin flip.”
Governor Waller emphasized that his stance on interest rates for the March Federal Open Market Committee (FOMC) meeting will be significantly influenced by the February labor market figures. If the data mirrors the stronger job creation and low unemployment rate reported in January, it could signal a diminished downside risk to the labor market, making it appropriate to maintain current interest rates. This approach would allow the Fed to monitor continued progress on inflation and labor market strength.
Waller expressed caution regarding the January jobs report, which showed a gain of 130,000 jobs. He noted that nearly all these gains were concentrated in healthcare and social assistance, and that private-sector data suggested weaker job creation. He suggested that the strong reading might be “more noise than a clear sign” of a strengthening job market and cautioned that one month of positive data does not establish a trend. If the January figures are revised lower or if the February report shows weakness, Waller indicated this would reinforce his previous view that a rate cut was warranted in March.
Regarding the Supreme Court’s decision to overturn a significant portion of tariffs, Waller believes the impact on spending and investment may be positive but its magnitude and duration are uncertain. He reiterated his view that tariffs have a one-time impact on prices and that underlying inflation, excluding tariff effects, is close to the FOMC’s 2% goal. He suggested that any relief in price pressures from tariff changes would likely be temporary and therefore discounted when assessing inflation. The administration’s plans to reimpose tariffs through other legal avenues add to the uncertainty surrounding future price impacts.
Waller has historically been a proponent of lower interest rates, having been the first Fed member to call for a rate cut in June. The Fed subsequently cut rates three times last fall, bringing the range to 3.5% to 3.75%. Waller dissented at the last FOMC meeting, advocating for a rate cut due to ongoing concerns about the job market’s strength. The decision to hold rates steady at that meeting was a departure from his preference.