BY COMOFORT OGBONNA
Federal Reserve Governor Christopher Waller on Friday signaled a notable shift in tone on U.S. monetary policy, calling for the removal of the central bank’s “easing bias” and warning that interest rate cuts should no longer be viewed as the most likely next step. His comments suggest a growing openness within the Federal Reserve to keeping rates higher for longer—or even raising them if inflation persists.
Waller, who had previously supported the idea of lower interest rates, said the Fed should make clear that future policy moves could go in either direction. While he stopped short of explicitly advocating for an immediate rate hike, he emphasized that policymakers should maintain current interest rates until there is clearer evidence that inflation is steadily returning toward the 2% target.
Speaking at an economic forum in Germany, Waller expressed frustration with market expectations of imminent rate cuts, describing such projections as inconsistent with current economic conditions. He pointed to inflation remaining above target levels and a labor market that, in his view, has remained relatively stable compared to earlier in the year.
“It’s just kind of crazy to say you could start talking about rate cuts in the near future,” Waller said, adding that under current conditions, discussions of near-term easing were not justified. He argued that central bankers “can’t be serious” if they are considering rate cuts as early as September given the present inflation environment.
His remarks come at a sensitive moment for the Federal Reserve as it navigates competing pressures: persistent inflation on one side and political as well as market expectations for lower borrowing costs on the other. Inflation, measured by the Fed’s preferred gauge, stood at 3.8% in April, still well above the central bank’s 2% target and showing signs of broadening across multiple sectors of the economy.
Waller said these conditions justify a formal change in the Fed’s policy language, specifically the removal of references suggesting that interest rate cuts are more likely than increases. According to him, such wording would better reflect a neutral stance and help reset expectations among investors and the public.
Markets reacted quickly to his comments, with interest rate futures shifting to reflect a higher probability of a policy hike later in the year. Trading data on Friday showed that contracts tied to the Fed’s policy rate priced in roughly a two-in-three chance of a quarter-point rate increase by the October meeting, with nearly even odds for a hike as early as September. This marked a sharp reversal from earlier expectations that the first move would likely be a rate cut by December.
Waller’s position highlights a growing divide among policymakers over the appropriate direction of monetary policy. While some Fed officials have recently leaned toward easing, others have warned that premature rate cuts could risk reigniting inflationary pressures. At the previous meeting, three officials reportedly dissented in favor of stronger action to address inflation concerns.
The debate is unfolding just as incoming Fed leadership prepares to take shape. Incoming chair Kevin Warsh is expected to assume the role amid heightened scrutiny over how aggressively the central bank should respond to inflation. His appointment follows pressure from political leaders, including President Donald Trump, who has repeatedly called for significantly lower interest rates and criticized the Fed’s cautious stance.
Waller’s comments suggest that under the new leadership, the Fed may adopt a more hawkish tone than previously expected. Policymakers are scheduled to meet on June 16–17, where interest rates are widely expected to remain unchanged, though attention will focus heavily on the tone of the policy statement and any signals about future moves.
Minutes from the Fed’s April meeting already indicated that a growing number of officials believe additional rate hikes could become necessary if inflation continues to spread beyond energy-related price pressures and import-related effects. This reinforces concerns that inflation may be becoming more entrenched across the broader economy.
Waller also stressed that he will be closely watching medium-term inflation expectations, particularly in the two- to four-year range. He warned that any significant rise in those expectations would be “alarming” and could force the Fed to act more aggressively to prevent inflation from becoming embedded in the economy.
He further cautioned that failing to respond decisively could risk a repeat of the 2021–2022 inflation surge, when price increases reached a 40-year high and forced the central bank into rapid tightening. According to Waller, the Fed must avoid falling “behind the curve” again by reacting too slowly to emerging inflation risks.
Overall, his remarks underscore a growing shift within the Federal Reserve toward maintaining tighter monetary conditions for longer, as policymakers weigh the risks of persistent inflation against concerns about slowing economic growth.