Fed Governor Waller urges caution for now, says rate cuts possible later in the year

Core Viewpoint - The ongoing war and rising oil prices have led to a shift in market expectations regarding interest rate cuts, with Federal Reserve officials reassessing their positions on monetary policy [1][2]. Group 1: Economic Conditions and Labor Market - Federal Reserve Governor Christopher Waller expressed caution about the current economic conditions, noting a weakening labor market with nearly no net job growth in 2025 and a 92,000 drop in nonfarm payrolls in February [4][5]. - Waller indicated that if the labor market continues to show negative trends, it may necessitate a reevaluation of the need for interest rate cuts later in the year [3][5]. - The labor force is not expanding, resulting in "net zero" job growth, which keeps the unemployment rate unchanged despite job losses [4]. Group 2: Interest Rate Outlook - Market expectations have shifted, with traders now almost completely dismissing the possibility of rate reductions through 2026 and into 2027, a change from earlier expectations of two or three cuts this year [2]. - Waller's previous advocacy for rate cuts has been tempered by recent labor market developments and the uncertainty surrounding the war, leading to a more conservative approach [3][6]. - Fed Governor Michelle Bowman believes that the Fed can implement three rate cuts this year, which would lower the benchmark federal funds rate below the neutral level [6][7].