Federal Reserve Governor Christopher J. Waller said Monday that policymakers face an unusually uncertain policy outlook as they weigh whether recent labor-market strength marks a genuine turnaround or a temporary statistical anomaly.
Speaking at the National Association for Business Economics’ annual policy conference in Washington, DC, Waller emphasized that upcoming employment data will play a decisive role in determining whether the FOMC holds interest rates steady or resumes easing as soon as March.
The central bank kept rates unchanged at its January meeting following three quarter-point cuts since September, a decision Waller opposed. He said he favored another reduction at the time because slowing hiring and rising risks to employment outweighed inflation concerns.
“In my view, appropriate policy should look through tariff effects on inflation,” Waller said, noting that underlying price pressures were already running near the Fed’s 2% target while labor-market risks remained elevated.
January’s employment report surprised economists with stronger-than-expected hiring, offering what Waller described as welcome news after a historically weak year for job creation.
“According to newly updated payroll numbers for the past year, the initial estimate is that the US economy created more jobs in January than in the previous nine months combined,” he said.
Still, the governor cautioned that policymakers cannot draw firm conclusions from a single month of data.
“One month of good news does not constitute a trend, but a year does, and the year of 2025 was an extraordinarily weak one for job creation—the weakest outside of a recession since 2002,” Waller said.
Whether January’s hiring surge reflects a sustained improvement or simply statistical volatility remains unclear, he added, describing the coming data releases as critical for policy direction.
Waller outlined sharply different outcomes depending on how February employment figures evolve.
“If the labor market data for February are consistent with the stronger job creation and low unemployment rate initially reported in January, indicating that downside risks to the labor market have diminished, it may be appropriate to hold the FOMC's policy rate at current levels and watch for continued progress on inflation and strength in the labor market,” he said.
However, revisions or renewed weakness would strengthen the case for easing policy.
“But 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,” Waller said.
The policymaker highlighted a disconnect between economic activity and payroll data, noting that broader measures of growth have remained stronger than employment figures might suggest.
That divergence has made interpreting the economy particularly challenging for monetary policymakers attempting to balance the Fed’s dual mandate of maximum employment and price stability.
“There is no dismissing the weakness of job creation in 2025,” Waller said, while acknowledging that incoming data could still reveal that hiring has stabilized.
For now, he said, the outlook remains evenly balanced.
“As things stand today, I rate these two possible outcomes as close to a coin flip,” Waller said.
Additional economic releases in the coming weeks should clarify which scenario is unfolding, he added.
“As we get more data, I will be able to decipher which of these cases we are in and can then be more deliberate in my decision on the appropriate setting of policy,” Waller said.
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