was crystal clear in a speech on Thursday that he would like the Fed to in July. Importantly, consider the first line of his speech at NYU:
My purpose this evening is to explain why I believe that the Federal Open Market Committee (FOMC) should reduce our policy rate by 25 basis points at our next meeting (July 30th).
As we share below, investors place the odds of a July rate cut at a mere 4.7%. Moreover, no other Fed members have called for a rate cut in July. Let’s examine Waller’s speech and highlight a few reasons he believes a July rate cut is necessary.
“Tariffs are one-off increases in the price level and do not cause inflation beyond a temporary surge. Standard central banking practice is to “look through” such price-level effects as long as inflation expectations are anchored, which they are.”
- Weakening Labor Market: He thinks the labor market looks “fine on the surface,” but BLS data revisions and non-BLS data point to downside risks. Notably, has shown no growth in the last three months.
- Rates Are Too Restrictive: Real growth is running around 1% and he expects similarly slow activity in the second half. Combined with a weak labor market and transitory tariff-related inflation, he states:
Taken together, the data imply the policy rate should be around neutral, which the median of FOMC participants estimates is 3 percent, and not where we are, 1.25 to 1.50 percentage points above 3 percent.
The Week Ahead
Earnings will likely be the predominant driver of stock prices this week. As we share below, courtesy of Earnings Whispers, Tesla (NASDAQ:), Google (NASDAQ:), and numerous other large companies will report.
We believe that the earnings of consumer-facing companies, such as Tesla, Coca-Cola (NYSE:), Domino’s Pizza (NASDAQ:), and Southwest Airlines (NYSE:), will help us better assess consumer spending trends.
will speak on Tuesday. Given recent inflation data and the reversal of inflation expectations, we will be interested in hearing if he starts to take on a more dovish tilt. For example, consider the decline in Friday’s UM , which is shown below the earnings graphic. We do not expect him to opine on the prospect of Trump firing him.
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