Fed’s Waller: Rate Cut Needed Soon

Federal Reserve Governor Chris Waller said it's time for the Fed to cut interest rates. In a new interview, he warned that the U.S. job market is showing hidden signs of weakness, especially in the private sector.

Waller said he may vote against holding rates steady at the next Fed meeting in July, he also added that he tries not to dissent often.

Private Sector Jobs Are Stalling

Waller explained that while headline job numbers look okay, the private sector is underperforming. Last month, about half of all job gains came from government hiring - not the private economy.

Waller described a stagnant job market. He said businesses are stuck, not hiring new workers but not laying people off either.

Recent data, including the Fed’s Beige Book and JOLTS report, show a cooling labor market. Waller said these reports suggest that the private sector is not as strong as it appears on the surface. While he admitted that he could be wrong, like in previous years when weakness rebounded, he believes the risk of waiting too long is greater now.

Rate cut unlikely in July, more likely in September. Despite Waller’s comments, most traders still don’t expect a rate cut at the Fed’s July 29-30 meeting. According to the CME FedWatch Tool, there’s only a 4.7% chance of a rate cut in July. But the odds jump to nearly 58% for a rate cut in September.

Waller as Possible Fed Chair?

Waller is also in the news for another reason, he is being considered as a possible replacement for current Fed Chair Jerome Powell, whose term ends in 2026. But recent reports suggest Kevin Hassett may be ahead in the race for the nomination.

How Would the US Dollar React to a Rate Cut?

If the Fed cuts interest rates, especially at the September meeting, the US dollar is likely to weaken. As you know lower interest rates reduce returns on dollar denominated assets, making the dollar less attractive to investors. Institutions often shift to other currencies or risk assets when the Fed turns dovish. If the rate cut confirms labor market stress, the dollar may drop faster as risk sentiment improves elsewhere and capital rotates out of USD.

The rate cut would show up first in the US Dollar Index.

The dollar has already moved past the 100.29 support level. With the Fed likely cutting rates in September and the labor market showing signs of stress, the dollar could continue its decline. Traders should now focus on whether 96.4 holds as a bottom, or if lower levels are next.