Recently, Christopher Waller, a Fed governor and one of the favorites for the next Fed chairman, once again called for an immediate rate cut.

Waller expressed his stance in his public speech: he supports a 25 basis point rate cut at the Fed's next monetary policy meeting on September 16-17 and expects further rate cuts in the next three to six months.

What did Waller say? Three sentences are highlighted

1. "I support a 25 basis point rate cut in September." He made it clear that he would vote for a rate cut at the FOMC meeting on September 16-17 and would not engage in a "hawkish posture".

2. "Don't wait for the unemployment rate to soar before acting." He worries that the labor market is "quietly weakening" and that if the data deteriorates across the board before cutting interest rates, monetary policy will "lag behind the curve" - this is what the central bank fears most.

3. "It will fall again in the next 3-6 months." He believes that this will not be a "symbolic rate cut", but the beginning of a round of easing cycle, and the pace will depend on subsequent data.

Why are you so worried about the job market now?

Don't forget, the recent "report card" of the U.S. economy is a bit of a stretch: non-farm payrolls increased by only 73,000 in July, far below expectations; the unemployment rate rose to 4.2%; The data for the first two months was also revised down sharply. This shows that the job market is not a "soft landing", but "has begun to cool down". And what the Fed fears most is that "inflation has just been suppressed, but employment has collapsed". Waller's meaning is very clear: it is better to cut a little earlier than to cut one step later.

Why is Waller "important"? He is not just an ordinary director, but: a permanent voting member of the FOMC who has real power over interest rate decisions; one of the chairman candidates focused on by the Trump administration, and his policy stance is closer to the White House's expectations for "interest rate cuts"; He has a deep academic background and extensive influence within the Federal Reserve.

He is now publicly calling for interest rate cuts, which is equivalent to "warming up market sentiment" for the September FOMC meeting and paving the way for a possible easing cycle in the future.

The Fed's "interest rate cut script" is turning page by page

After yesterday's clear support for a 25 basis point rate cut in September, Fed Governor Christopher Waller added a few key details today - interest rate cuts are coming, but they will not "step on the accelerator"; Data is the steering wheel, and employment is the vane.

Waller believes that monetary policy should shift from "tight" to "more neutral". He defined the "neutral interest rate" as 1.25 to 1.5 percentage points lower than the current 4.25%-4.50%. Converted, the neutral interest rate range is about 2.75%-3.25%. This means that the Fed may cut interest rates by a total of 100-150 basis points in the next 6-12 months.

Why do we have to move now?

Afraid of "falling behind the curve". He cited the Fed's internal research to emphasize that inflation is close to the 2% target (excluding tariff disturbances); long-term inflation expectations are stable; The risk of a weak labor market rises. "I don't intend to let policy lag far behind," he said. This sentence seems plain, but in fact it is extremely heavy - the Fed's biggest fear is not "falling too fast", but "waking up too late".

Not only policy, but also a "power game".

Just last week, Trump suddenly announced the firing of another governor, Lisa Cook, on the grounds of "suspicion of mortgage fraud," but Cook has filed a lawsuit, saying the move is illegal and a signal of political interference in the central bank's independence. What does this mean? The White House is trying to reshape the Fed's power structure, and Waller's "rate cut" stance is highly consistent with Trump's call for lower interest rates.

Powell "let go": The door to interest rate cuts has opened

Federal Reserve Chairman Powell finally said what the market had been waiting for for half a year at the Jackson Hole annual meeting last Friday: "It's time to consider adjusting monetary policy." Not "maybe", not "wait and see", but a clear acknowledgment that "downside risks to the labor market are rising"

Translation in one sentence: Interest rate cuts are not a question of whether to cut interest rates, but when and how to cut them

Sort out the key information to understand Powell's turn signals:

1. Last year, it was reduced by 100 basis points, and this year it is on hold. Starting in September 2024 (before Trump's election), the Fed has cut interest rates consecutively, with a cumulative reduction of 1 percentage point; But entering 2025, interest rates have remained unchanged at 4.25%-4.50%, mainly due to concerns that Trump's "high tariff policy" will reignite inflation.

Inflation is still around 2.8%, above the 2% target, so it cannot be cut "drastically".

2. Now, the winds have changed: employment is more of a concern than inflation. Powell made it clear: "Downside risks to the labor market are rising. This means that the central bank's focus is shifting from "anti-inflation" to "stabilizing employment"; Even if inflation is not fully up to standard, we cannot wait for the unemployment rate to soar before acting.

3. Regarding tariffs, he gave a "reassurance". The market has always been afraid: tariffs, rising prices, rebounding inflation, and interest rate cuts. But Powell said tariffs are more likely to bring a one-time increase in prices than a sustained inflationary spiral. This judgment is crucial - it shows that the Fed will not be intimidated by short-term price increases, and there is still room for cyclical adjustments.

As soon as Powell's words fell, the financial market immediately "rushed": the probability of a 25 basis point rate cut in September soared from 75% before the speech to 86.2% (CME FedWatch data); 10-year U.S. Treasury yields fell in response; The three major U.S. stock indexes rose collectively, led by technology stocks.

This shows that the market not only understands, but has also placed an order.