Federal Reserve Governor Christopher Waller has sparked debate about US monetary policy, explicitly calling for a rate cut at the Federal Open Market Committee (FOMC) meeting in July. This call is driven by concerns about slowing job growth in the private sector, despite a declining unemployment rate.
Waller pointed out that the June jobs report, released on July 3rd, revealed a significant slowdown in private sector job growth, coupled with decelerating wage growth. He emphasized that half of the new jobs announced in the report came from state and local governments, while new private sector jobs were fewer than in previous months.
In his strongest call to date, Waller said the Fed should lower borrowing costs before the labor market begins to deteriorate. He added that with inflation approaching its target and limited upside inflation risks, there is no reason to wait for the labor market to worsen before starting to lower interest rates.
Waller believes that the appropriate interest rate for the Federal Reserve should be 3%, which is 125-150 basis points lower than the current level of 4.25%-4.5%.
Waller's comments are gaining importance as he is seen as a potential candidate to succeed Jerome Powell as Chairman of the Federal Reserve in May. Waller indicated that he would accept the position if offered by former President Donald Trump.
While Waller and Bowman support a rate cut in July, some policymakers disagree, arguing that there are inflationary risks associated with tariffs. Officials such as Michelle Kugler and John Williams believe it is appropriate to keep interest rates at their current levels for a while.
The Fed's decision on interest rates in July will have significant impacts on the US and global economy. A rate cut is likely to stimulate economic growth, but it could also lead to higher inflation. Conversely, keeping interest rates at their current levels may help control inflation, but it could also slow down economic growth. It remains to be seen how the Fed will balance these competing risks at its upcoming meeting.
It is crucial to remember that economic forecasts are inherently uncertain, and any policy decision carries inherent risks. The Federal Reserve's actions will be closely watched for their impact on inflation, employment, and overall economic stability.
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