Fed Governor Christopher Waller on Careful Rate Cuts, Labor Market Concerns, AI

Monetary Policy & Economic Outlook - The speaker advocates for a cautious approach to interest rate cuts, suggesting a 25 basis points reduction at a time, to avoid potential mistakes given conflicting data on the labor market and GDP growth [6][9][10] - The speaker believes the labor market is weak, contrasting with stronger GDP growth, creating a puzzle that requires either GDP numbers to decline or the labor market to rebound [7][8] - The speaker notes that tariff uncertainty and firms waiting to assess the impact of AI are contributing to the slowdown in hiring [11][12][13] - The speaker suggests that current financial market conditions are bifurcated, with loose conditions for corporate America but tighter conditions for Main Street America due to higher mortgage, auto loan, and credit card interest rates [15][16] - The speaker acknowledges the risk of being "lulled" into reducing rates based on weak payrolls data, potentially fueling financial market excesses, but emphasizes the Fed's mandate of maximum employment and stable prices [21][22] Inflation & Sectoral Reallocation - The speaker is not overly concerned about inflation, including tariff-induced or AI-induced inflation, as sectoral reallocation may offset demand increases in one sector with decreases in others [25][26][27][28] - The speaker estimates inflation is running at approximately 25%, and suggests focusing on core inflation to avoid volatility from energy prices [28] AI Impact & Structural Changes - The speaker expresses concern that the potential impact of AI on the labor market could be a structural change, which monetary policy is not designed to address [35] - The speaker differentiates the current situation from the previous year, citing tariff uncertainty and the AI factor as key differences, with unemployment not being a major concern last year [34]