Waller: Fed May Keep Rates Unchanged All Year

Fed Governor Christopher Waller told an audience in Alabama on Friday he may back holding interest rates steady for the rest of the year if inflation continues to pose the larger danger to the economy. He cited weakening hiring and enduring price pressures as reasons the Federal Reserve might keep its policy rate in place until clearer economic signals emerge.

Waller voted in March to keep the federal funds target at 3.5% to 3.75%. He had supported cuts earlier but said recent data changed his view on the balance of risks facing policymakers.

On the labor market, Waller said recent readings have reduced his worry that weak hiring will quickly raise unemployment. He suggested the break-even hiring rate-the level of job gains needed to prevent unemployment from rising-may now be near zero. “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,” he warned.

Waller also pointed to tariffs and other external disruptions as potential sources of longer-lasting price pressure. He said those factors, combined with recent shocks, could keep inflation higher than many expect. “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 added.

Waller noted the Fed’s dual mandate to promote maximum employment and stable prices, saying high inflation and weak job growth at the same time would place both goals under pressure. If inflation risks come to outweigh labor-market risks, he said, the policy rate may need to remain in its current range for an extended period. Financial markets have largely priced in no rate cuts for the rest of the year.

His remarks came amid a separate debate over who would lead the Fed if Chair Jerome Powell’s term ends before a successor is confirmed. The White House signaled this week that Powell should not continue as chair after May 15 if no replacement has been confirmed. Treasury Secretary Scott Bessent named Vice Chair Philip Jefferson and Waller as possible interim leaders.

Powell has said he would continue as “chair pro tempore” if a successor is not confirmed in time, pointing to past practice. The legal question of who controls the Fed during such a gap could prompt a court challenge if the White House and the Fed disagree. Since 1935, five chair terms have expired before a successor was confirmed; in each case the sitting chair remained in the role and no president challenged that outcome.

The Senate is scheduled to hold confirmation hearings next Tuesday for Kevin Warsh, President Trump’s nominee to replace Powell, but the timetable could be disrupted. Senator Thom Tillis has said he will oppose any nomination until a criminal probe into Federal Reserve building renovations is resolved.

Waller’s comments combined his reassessment of hiring trends and his concern that tariffs and other disruptions could sustain inflation, while uncertainty about Fed leadership adds to questions about the central bank’s policy path.