Two Federal Reserve governors took to the airwaves Friday to talk about what the rest of the year might hold for interest rates.
Saying there was still opportunity for interest rate cuts later this year, Federal Reserve Governor Christopher Waller nonetheless expressed caution Friday about current economic conditions.
Also on Friday, Fed Governor Michelle Bowman said in a Fox Business interview that she believes the Fed can cut three times this year, which would take the benchmark federal funds rate below the neutral level that FOMC officials see as neither supporting nor restricting growth.
Waller, who previously advocated for rate cuts, said in a CNBC interview that recent developments in the labor market as well as the uncertainty of the war with Iran require a more conservative approach.
“It doesn’t mean that I’m going to stay put for the rest of the year,” Waller said on “Squawk Box.” “I just want to wait and see where this goes, and if things go reasonably well and the labor market continues to be weak, I would start advocating again for cutting the policy rate later this year.”
Switching Expectations
The Fed voted March 18 to hold interest rates steady.
CNBC noted that markets have almost completely doused the chance of rate reductions through the rest of the year and well into 2027. It said that’s a switch from expectations before the war with Iran, when traders had anticipated two or three cuts this year.
Bowman, in a Fox Business interview, took that position even though she said she expects “strong growth” this year “supported by the supply-side policies that this administration is putting into place.”
Bowman is one of just three Fed officials who see aggressive rate cuts this year, according to an update of the Fed’s “dot plot” grid released Wednesday.
Soaring oil prices and questions about how long the war will last have changed market expectations, however, and caused a rethinking from Waller and other policymakers, CNBC said. In January, Waller dissented from a Federal Open Market Committee decision to hold steady, but went along with the majority earlier this week for another pause.
Waller’s earlier dovish posture was motivated by a clearly weakening labor market, which produced nearly no net job growth in 2025, CNBC reported.
On Friday, however, Waller noted that the labor force also is not expanding, so “net zero” growth is still leaving the unemployment rate unchanged, even with a 92,000 drop in nonfarm payrolls in February.
“If we get another 90,000 jobs decline in the next jobs report, that’ll be like four negative reports out of five. To me, that’s not zero. So at that point, you need to start thinking about this labor market isn’t good,” Waller said. “I don’t think this war is going to help in any way going forward, but we’ll have to see what happens with inflation.”
Inflation’s Effect
Waller said he sees inflation being boosted by one-off effects from tariffs but otherwise moving structurally towards the Fed’s 2% goal.
“If those tariff effects don’t roll off by the second half of the year, and then inflation starts rising then, then you’re in this tricky business of like, do we worry about inflation? Take a chance on recession or not?,” he said. “So I’m really going to keep an eye on what the future labor markets look like to see whether I want to start advocating for rate cuts in future meetings, but I also want to see what happens with inflation.”
