Fed Governor Waller Advocates for September Rate Cut, Discusses Neutral Rate

Fed Governor Waller's Stance on Rate Cuts

• 🎯 Fed Governor Waller explicitly called for rate cuts to begin in September, citing temporary tariff pass-through effects and a weakening labor market.
• 💡 He believes the Fed may still have a significant distance to go to reach a neutral interest rate.
• ⚠️ Waller's decision is based on the idea that tariffs won't create wider inflation, and with inflation expectations anchored and the labor market weakening, the Fed should prioritize employment.

Other Fed Officials' Outlooks

• 💬 St. Louis Fed President Alberto Musalam expressed flexibility, noting increased downside risks to the labor market, despite concerns about tariffs.
• 📈 Atlanta Fed President Raphael Bostic maintained his baseline of one cut this year but indicated a faster labor market slowdown could prompt a September cut.

Market Reaction and Future Expectations

• 📊 The market is showing strong conviction for a September cut, with futures pricing in a 95% probability, and an even money bet for an October cut.
• 🔑 The broader market question is whether there will be two more cuts this year or just one, and the path to reaching a neutral rate.
• 🗓️ The December Fed Funds contract around 3% suggests the market is pricing in the Fed's movement towards neutral by the end of next year.

Lisa Cook Investigation Update

• ⚖️ The discussion touches on the ongoing situation with Fed Governor Lisa Cook, with both Waller and Bostic declining to comment.
• 📄 Cook's attorney is leveraging arguments that potential issues were known when she submitted disclosure documents, suggesting they might not be grounds for removal.
• ⏳ The administration wants a summary judgment, while Cook's team wants to review documents and interview investigators; a ruling is pending.