Federal Reserve Governor Christopher Waller stated on Friday that he dissented from this week's FOMC decision to hold interest rates steady, arguing that recent economic data clearly indicates the need for further rate cuts to prevent monetary policy from excessively restraining economic activity. In his statement, Waller pointed out that current monetary policy remains significantly restrictive, adding, "The economic data convinces me that continued policy easing is necessary." This week, Fed officials voted to maintain the benchmark interest rate in the 3.5% to 3.75% range, citing an improved U.S. economic outlook. Waller, however, advocated for an immediate 25-basis-point rate cut, casting the sole dissenting vote at the meeting.
Waller's dissent primarily stems from his concerns about the labor market's resilience. He emphasized that the unemployment rate has been rising steadily since the middle of last year, accompanied by a slowdown in job growth. He also suggested that upcoming data revisions might reveal that U.S. nonfarm payroll additions for the entirety of last year showed "almost no growth." Furthermore, during multiple business and community surveys, Waller received feedback about corporate layoff plans for 2026, which he interprets as reflecting weak business confidence in future employment expansion and a rising risk of significant deterioration in the labor market.
On the inflation front, Waller believes that if the impact of former President Trump's tariff policies is excluded, the current inflation level is already close to the Fed's 2% target, thereby creating room for further rate cuts. For several months, Waller has been calling for rate cuts based on his assessment of "moderate inflation coupled with employment concerns." However, after the Fed concluded 2025 with three consecutive rate cuts, he had previously indicated no urgent need for continued easing, making his sudden dissenting vote a surprise to markets.
In contrast to Waller, Atlanta Fed President Raphael Bostic stressed that inflation remains too high and the Fed should exercise patience by pausing further rate cuts. In an interview on Friday, he stated, "We are still in a phase where inflation is elevated, so policy needs to maintain a degree of restrictiveness." Bostic believes the downside risks to the job market have eased significantly compared to a month ago, which bolsters policymakers' confidence to await more data.
Fed Chair Jerome Powell also stated this week that the decision to hold rates steady received broad support from a policy perspective, adding that recent data shows the unemployment rate trajectory has stabilized, with no further deterioration in the labor market. Meanwhile, former U.S. President Trump announced on Friday his plan to nominate former Fed Governor Kevin Warsh to succeed Powell as Fed Chair after Powell's term ends in May. Bostic commented that he has had little contact with Warsh but has heard he is "very thoughtful and worth engaging with deeply."
It is noteworthy that this meeting was also Bostic's final FOMC meeting as a policymaker, as he is set to retire officially at the end of February. Against the backdrop of an imminent new chair appointment and emerging policy divergences within the Fed, market expectations for the pace of rate cuts in 2026 are likely to experience further volatility.