Federal Reserve Governor Christopher Waller delivered a nuanced message on Wednesday: more interest rate cuts are coming, but the central bank isn't in any hurry to deliver them. For investors trying to decode Fed policy, it was a masterclass in central bank ambiguity.
The Core Message
Waller, who has emerged as one of the Fed's most prominent voices favoring rate cuts, outlined a scenario where inflation continues to slow through 2026. Under that assumption, he said current policy settings are "up to 100 basis points above neutral"—the level where the Fed is neither restraining growth nor stoking price pressures.
That's significant. If Waller is right, the Fed has room to cut rates by a full percentage point before reaching neutral territory. At a quarter-point per cut, that implies four more reductions ahead.
But There's a Catch
Waller emphasized there's "no rush" to cut rates given the current outlook. While he noted the "jobs market is very soft" and current payroll growth is "not good," he stopped short of calling for immediate action.
The caution reflects the Fed's uncomfortable position. Inflation remains above target, with tariff-related price pressures filtering through the economy. Cutting too aggressively could risk reigniting price growth; cutting too slowly could allow the labor market to deteriorate further.
The Race to Replace Powell
Waller's comments carry extra weight because he's reportedly under consideration to replace Jerome Powell as Fed chair when Powell's term expires next year. President Trump will name a new chair after Powell's final three meetings, and Waller's willingness to advocate for lower rates aligns with the administration's preferences.
A Waller-led Fed would likely be more inclined toward accommodation than the current regime—though Waller's Wednesday comments suggest he wouldn't be recklessly dovish.
What the Market Heard
Markets interpreted Waller's remarks as modestly supportive of risk assets. The suggestion that rates remain 100 basis points above neutral gives the Fed plenty of room to ease if economic conditions warrant—a safety net that supports valuations.
At the same time, the "no rush" language tempered expectations for imminent action. The Fed appears content to hold rates steady at January's meeting while gathering more data.
Looking Ahead
Tomorrow's CPI report will be crucial in determining how quickly the Fed can move. A cooler-than-expected inflation reading would validate Waller's optimism about the policy path. A hotter number would complicate the rate-cut narrative significantly.
The Bottom Line
Waller's message was dovish in destination but cautious in timing. The Fed sees lower rates ahead—but it's going to take its time getting there. For investors, that means continued support for risk assets, but don't expect the Fed cavalry to ride to the rescue at the first sign of market stress. Patience is the operative word.
