Fed's Christopher Waller Floats 5 More Rate Cuts To Reach Neutral: '125 Basis Points To Go' — Sees Disinflation, Labor Softness Ahead

Federal Reserve Governor Christopher Waller suggested the central bank may need to cut rates by as much as 125 basis points to reach a more neutral policy stance, citing signs of disinflation and softening labor demand.‘125 Basis Points’ To Reach NeutralOn Thursday, Waller said the central bank may need five additional rate cuts to reach the neutral rate, which is a theoretical level where the economy operates at full employment and inflation remains stable. Waller said this at Bloomberg's Council on Foreign Relations event.Waller said that he’s “looked at the SEP, and the median is around 3%,” referring to the Summary of Economic Projections. “So for the committee as a whole, if it's 3%, you've still got 125 basis points to go to get to neutral if everything starts coming back closer to the target.”This comes amid growing debate within the Fed over whether current monetary policy remains too restrictive. “Despite more than three years of restrictive monetary policy,” Waller said, the path back to a neutral rate, which is neither stimulating nor contracting, may involve “five rate cuts.”On the labor front, he warned that official unemployment figures may be masking weaker demand. “We're in this unusual situation where we have this kind of zero net immigration,” Waller said, adding that “it’s masking this decline in labor demand.” He argued that without that distortion, “unemployment would be 4.95%,” compared to the reported 4.3%. Waller emphasized that while inflation is still running above the Fed's 2% goal, the broader trend points toward easing price pressures. He said he expects inflation to “come back down to target” alongside signs of a “softening labor market.”Fed Chair Hints At More Rate CutsIn his latest speech on Tuesday, Fed Chair Jerome Powell hinted that the central bank is continuing to lean towards lower rates, saying that “the rising downside risks to employment have shifted our assessment of the balance of risks.”Governor Michael Barr, however, has spoken in favor of keeping rates higher for longer, citing persistent inflation that he said could stick through 2027. “If we see inflation moving further away from our target, then it may be necessary to keep policy at least modestly restrictive for longer,” he said.According to the CME Group's FedWatch tool, markets are pricing in a 96.8% probability of another 25-basis-point rate cut at the Federal Open Market Committee's Oct. 29, 2025, meeting. Forget China, Federal Reserve Is Biggest Seller Of US Debt—By $1.5 Trillion, Even As Foreign Holdings Remain Stable Photo courtesy: Tanarch on Shutterstock.com