Waller questions January jobs surge, backs possible March cut

• Key Insight: Fed Gov. Christopher Waller highlighted his skepticism on whether the labor market is showing signs of recovery, or whether the January jobs report was a one-off.
• Expert Quote: "If the good labor market news of January is revised away or evaporates in February, it would support my position at the FOMC's last meeting, that a 25-basis-point reduction in the policy rate was appropriate, and that such a cut should be made at the March meeting." — Fed Gov. Christopher Waller
• Look ahead: The better-than-expected labor market report from January and lower inflation indicators make it unlikely that the central bank will adjust rates in its upcoming meeting.

Federal Reserve Gov. Christopher Waller said Monday he is skeptical about January's better-than-expected employment report and would support a cut in short-term interest rates in March if the data proves to be a one-off rather than a rebound in the job market.
Speaking at a National Association for Business Economics conference in Washington, Waller said February's employment report and any revisions to the January data will factor into whether he backs a 25-basis-point rate cut. He described the decision as "a coin flip."

"If the good labor market news of January is revised away or evaporates in February, it would support my position at the [Federal Open Market Committee] last meeting, that a 25-basis-point reduction in the policy rate was appropriate, and that such a cut should be made at the March meeting," Waller said.

In January, Waller dissented from the Fed's rate-setting committee's decision to keep rates steady. He and fellow Fed Gov. Stephen Miran preferred a 25 basis-point cut. Last month's FOMC decision put an end to three consecutive rate cuts that began in September and lowered the federal funds rate to between 3.5% to 3.75%.

The latest labor market data shows that U.S. employers added 130,000 jobs in January as the unemployment rate dropped to 4.3%. Health care and construction drove the increase, adding 82,000 and 33,000 jobs, respectively.

Waller said that while he considers government data "the gold standard," he is concerned last month's report "may contain more noise than signal."

He questioned whether the job gains, concentrated in health care and construction, were temporary.

"Many other sectors lost jobs, more consistent with what happened in 2025," said Waller. "All this does not suggest the whole labor market is heading for a more robust footing."

Regarding inflation, Waller said the consumer price index came in below expectations for January, driven in part by lower energy prices. The annual inflation rate was 2.4% in January, down from about 2.7% in prior months.

He noted that it has been widely unknown how tariffs will impact inflation, though he said he believes they will only temporarily create a boost rather than becoming an ongoing inflationary pressure.

"I estimate that what I call underlying inflation—inflation without the effects of tariffs—is close to the FOMC's 2% goal," he said. "Over 2025, the inflationary effects from tariffs tended to be smaller than expected, in part from downward adjustments to the ultimate size of tariffs. However, I also suspect that exporters and importers were eating a sizable share of the costs to maintain market share and retain customers."

Waller also questioned how the Supreme Court's ruling invalidating tariffs will affect near-term price increases, suggesting firms might lower prices as input costs associated with tariffs decline.

"Or, prices may be unaffected if the administration quickly reimposes at least some of the tariffs under other laws," Waller said. "It is too soon to know."

The Supreme Court on Friday overturned the Trump administration's effort to impose sweeping tariffs in a 6-3 decision. The ruling invalidated the import duties President Donald Trump imposed on April 2, 2025, on dozens of countries. The administration has said it intends to raise global tariffs to 15% following the court's decision.

Waller said that if February labor market data show stronger job creation and low unemployment, it may be appropriate to hold the FOMC's policy rate at current levels while continuing to monitor progress on inflation.