Fed Governor Waller says he would support a 25-basis-point reduction in March if January labour strength is revised away or evaporates but may be appropriate to hold if downside labour market risks have diminished

Policy bias / rate signal

• Waller says he dissented in January and favoured another cut
• Waller says he did this because job gains slowed and downside risks to employment increased amid somewhat elevated inflation
• Waller says he favoured another cut in January to bring policy rate closer to a neutral setting
• Waller says balance of risks in January were weighted toward further policy easing

Forward guidance 

• Waller says it may be appropriate to hold policy rate at current levels if downside labour risks have diminished
• Waller says it would support a 25-basis-point reduction in March if January labour strength is revised away or evaporates
• Waller says he will need to see the February report due March 6 before forming any judgment on labour rebound
• Waller says before March 17-18 meeting he will get February employment and inflation data, plus job openings and retail sales
• Waller says February CPI on March 11 and February labour report will be important basis for his judgment on proper policy stance
• On March, Waller says he rates the two possible outcomes as close to a coin flip.

Tariffs / trade policy

• Waller says appropriate policy should look through tariff effects on inflation
• Waller says tariff increases have not affected longer-term inflation expectations and will only temporarily boost inflation
• Waller says Supreme Court ruling overturning a large share of import tariffs may have a positive impact on spending and investment
• Waller notes Administration plans to reimpose at least some tariffs using other laws
• Waller says he will look through tariffs if they come down
• Waller says Supreme Court ruling is unlikely to have a significant impact on his view of appropriate policy stance

Labour market

• Waller says January employment report came in substantially stronger than he and most forecasters and market participants expected
• Waller notes initial estimate is economy created more jobs in January than previous nine months combined.
• Waller says 2025 was extraordinarily weak for job creation, weakest outside a recession since 2002
• Waller notes revised 2025 job gains of 181,000, averaging 15,000 a month
• Waller says payroll employment probably fell in 2025, only third year since 1945
• Waller says decline in net immigration last year significantly lowered labour force growth
• Waller says unemployment fell last month but is still higher than a year ago
• Waller says he has concerns jobs report may contain more noise than signal
• Waller says job gains were concentrated primarily in health care and construction
• Waller notes ADP reported 22,000 jobs; Revelio estimated 3,000 new private-sector jobs in January
• Waller notes Challenger Gray and Christmas counted 108,000 layoff announcements last month

Inflation

• Waller notes headline CPI inflation came in below expectations for January
• Waller says core CPI inflation rose 0.3 percent in January and was up 2.5 percent over 12 months
• Waller estimates January PCE inflation around 2.8 percent over 12 months, with core about 3 percent
• Waller says PCE inflation has crept up in past few months and is meaningfully above 2 percent goal
• Waller estimates underlying inflation without tariff effects is close to 2 percent goal

GDP growth

• Waller notes advance estimate of Q4 2025 real GDP growth of 1.4 percent annual rate
• Waller notes private domestic final purchases increased 2.4 percent
• Waller expects real GDP to grow above 2 percent over six months after smoothing shutdown effects
• Waller notes PCE growth slowed from 3.5 percent in Q3 2025 to 2.4 percent in Q4

Balance of risks

• Waller says risk of substantial downturn in labour market combined with limited risk of higher inflation warranted another cut in January
• Waller says key to setting appropriate policy will be his view of the labour market