Fed Governor Christopher Waller said rates may stay unchanged this year because inflation still looks like the bigger risk

Fed Governor Christopher Waller said Friday that he is ready to back no rate cuts for the rest of the year if inflation stays the bigger threat.

Speaking in Alabama, Waller said policymakers face a setup: a possible long inflation shock and a labor market with no job growth that looks stable. It raises the chance that the Fed will leave policy unchanged until the economy gives a signal.

Waller said high inflation and a weak labor market would put the Fed in a bind because both sides of its dual mandate would be under pressure at once. He said that if inflation risks outweigh labor risks, the policy rate may need to stay in its current target range for a long period.

Markets already expect the Fed to stay on hold this year because the outlook remains cloudy. Waller had supported rate cuts before, but in March, he voted to keep the benchmark federal funds rate at 3.5% to 3.75%.

Waller hardens his case for holding rates as hiring weakens and inflation risks grow

Friday’s speech showed a change in how Waller is reading the labor market. In recent months, he had stressed the danger of weak hiring.

Now he says the evidence is building that the break-even hiring rate may be close to zero, meaning very little hiring may still be enough to keep unemployment from rising.

“My sense is that employers are walking a tightrope between their earlier challenges in finding qualified workers and where they think the economy is going, leaving them vulnerable to some economic shock that could tip them over and lead to significant job reductions,” Waller said.

He also warned that price pressure could last longer than many hope.

“Beyond the length of these disruptions, with this economic shock coming on the heels of the boost to prices from import tariffs, I believe there is the possibility that this series of price shocks may lead to a more lasting increase in inflation, as we saw with the series of shocks during the pandemic,” he said.

If tariffs and other disruptions keep feeding inflation, the Fed may stay parked longer.

Trump tests Powell’s future at the Fed while Waller enters the interim chair debate

Waller’s speech also landed in a fight over who would lead the Fed if Jerome Powell’s term ends before a successor is confirmed. At the core of President Trump’s threat to fire Powell is a legal question that still is not settled: who decides what happens next if the chair’s term expires first.

This week, the administration signaled that Powell should not keep serving as chair after May 15 if no replacement is confirmed. Treasury Secretary Scott Bessent said Tuesday that several people could serve as interim leader, naming Vice Chair Philip Jefferson and Waller as options.

Powell had stated his position last month. He said he would continue as “chair pro tempore” if no successor is confirmed on time.

“That is what the law calls for,” Powell said. “That’s what we’ve done on several occasions, including involving me. And it’s what we’re going to do in this situation.”

His stance raises the chance of a court clash with the White House over Fed independence. Rival legal opinions between the executive branch and the Fed go back to 1978, and no court has settled the matter.

The Senate is set to hold confirmation hearings Tuesday for Kevin Warsh, Trump’s nominee to replace Powell, but that may be delayed because Sen. Thom Tillis has said he will oppose any nomination until a criminal probe into the Fed’s building renovations is resolved.

Since 1935, there have been five times when a chair’s term expired before the Senate confirmed a successor. Each time, the sitting chair stayed in place, and no president challenged it.

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