WASHINGTON — A Federal Reserve official said Monday that January’s unexpectedly strong employment numbers might lead the central bank to postpone an interest rate reduction at its upcoming March meeting, a move that could draw criticism from President Donald Trump.
Federal Reserve Governor Christopher Waller noted that employers hired 130,000 workers last month, exceeding forecasts, but cautioned this improvement might be temporary. He emphasized the need to see similar positive employment data in February before determining whether the job market is truly recovering from its weakness throughout 2024.
This cautious stance marks a change for Waller, who previously advocated for rate cuts. In January, he was among two Fed governors who opposed keeping interest rates unchanged after the central bank had reduced rates three times late last year. The Fed’s benchmark rate currently sits around 3.6%.
Lower Federal Reserve rates typically translate to reduced borrowing costs for home mortgages, car loans, and business financing over time, though market conditions also influence these rates.
Regarding the Supreme Court’s decision to overturn several of Trump’s tariffs, Waller suggested this would have minimal economic impact and wouldn’t influence his rate decisions. The ruling might create “a positive impact on spending and investment,” he noted, but “how large the impact may be and how long it could last is unclear.”
Waller pointed out that the White House plans to reinstate tariffs through alternative legal mechanisms, generating “considerable uncertainty over to what extent tariffs will continue.”
Speaking at a National Association for Business Economists conference, Waller outlined two scenarios for March. If February’s employment report matches January’s strength, “indicating that downside risks to the labor market have diminished, it may be appropriate” to maintain current rate levels “and watch for continued progress on inflation and strength in the labor market.”
However, he added, “But if the good labor market news of January is revised away or evaporates in February, a cut should be made at the March meeting.”
“As things stand today, I rate these two possible outcomes as close to a coin flip,” Waller concluded.
The Fed governor also discussed what many economists find puzzling about today’s economy: relatively strong growth alongside minimal job creation last year. Waller predicted that even the modest employment gains reported for 2024 will eventually be revised downward to negative territory.
“This would be the first time in my career, my life, that I saw an economy growing like this, and zero job growth,” Waller explained. “I don’t even know quite how to think about this.” He suggested that hiring might increase this year, resolving this apparent contradiction.
Another possible explanation involves increased productivity following the pandemic, as businesses discovered ways to maintain output with fewer employees.
President Trump criticized the Fed Friday after government data showed economic growth slowed to 1.4% annually in the fourth quarter, down from 4.4% in the previous quarter.
“LOWER INTEREST RATES,” Trump wrote on social media. “‘Two Late’ Powell is the WORST!!” he added, misspelling his typical nickname for Fed Chair Jerome Powell, whom he usually calls “Too Late.”
