A Fed governor says interest rate cuts this year are still possible

Fed Governor Christopher Waller said Friday that he supported the central bank's decision to hold interest rates steady this week, but left open the possibility of cuts later in the year if the labor market continues to weaken.

Speaking on CNBC's "Squawk Box," Waller said he would push for rate reductions if conditions allowed. "I just want to wait and see where this goes," he said, "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."

The remarks mark a shift in posture for Waller, who dissented from the Federal Open Market Committee's decision in January to leave rates unchanged. At Wednesday's meeting, he sided with other policymakers in leaving the benchmark rate at 3.5% to 3.75% — the second straight pause.

Waller attributed his caution to two factors: a labor market that has weakened but not yet fallen far enough to warrant action, and uncertainty over the Iran war's effect on inflation.

Nonfarm payrolls fell 92,000 in February. He pointed out that stagnant labor force participation has kept unemployment figures stable despite the job losses. Still, he warned that another month of similar losses would change his assessment. "If we get another 90,000 jobs decline in the next jobs report, that'll be like four negative reports out of five," he said. "To me, that's not zero."

On inflation, Waller said he views tariff-driven price pressures as a one-time event and believes underlying inflation is still headed toward the Fed's 2% target But if those effects fail to recede and price growth accelerates into year's end, he said, the Fed would confront an uncomfortable tradeoff between containing inflation and avoiding a recession.

The pause came as the Fed navigated an economy where inflation has stayed above its 2% target for five straight years — a problem now compounded by rising energy costs tied to the Iran war — even as hiring has repeatedly fallen short. Fed Chair Jerome Powell said at a news conference Wednesday that "the implications of developments in the Middle East for the U.S. economy are uncertain."

Traders now see December as the earliest point at which the Fed might act, with futures markets pricing in only about a 60% chance of a cut at that meeting, according to CNBC. Before the war broke out, markets had priced in two or three reductions this year.

Fellow Fed Governor Michelle Bowman, also nominated by President Donald Trump, said in a separate Fox Business interview Friday that she expects three rate cuts this year — a view shared by just two other policymakers among the 19 who participated in the Fed's updated "dot plot" released Wednesday.