Fed’s Waller says rate cut in March is a ‘coin flip’ following a strong US jobs report

Federal Reserve officials are weighing economic data carefully as they determine their next move on interest rates, with a key policymaker now suggesting that a March rate cut might be delayed following stronger-than-expected employment figures.

Federal Reserve Governor Christopher Waller indicated Monday that January’s solid job gains could warrant postponing a rate reduction at the central bank’s upcoming March meeting. Such a decision would likely provoke criticism from President Donald Trump, who has already expressed dissatisfaction with the Fed’s monetary policy.

“If February’s jobs report shows similar strength to January’s, indicating that downside risks to the labor market have diminished, it may be appropriate to maintain current interest rate levels while monitoring inflation progress and labor market strength,” Waller told attendees at a National Association for Business Economists conference.

The January employment report, which showed employers added 130,000 jobs—exceeding market expectations—has caused Waller to reconsider his stance. Just last month, he was one of two Fed governors who dissented against holding rates steady after three consecutive rate cuts in late 2023. The Fed’s key rate currently stands at approximately 3.6%.

However, Waller acknowledged that January’s hiring surge might be an anomaly. He emphasized he would need to see another positive report in February to conclude that the job market, which he described as “very weak in 2025,” is genuinely improving.

“If January’s positive labor market news is either revised away or disappears in February’s data, a cut should be made at the March meeting,” Waller stated. He characterized these two possible outcomes as “close to a coin flip” based on current information.

When the Federal Reserve lowers its benchmark rate, it typically leads to reduced borrowing costs for mortgages, auto loans, and business financing, though these rates are also influenced by broader financial market conditions.

Waller also addressed the Supreme Court’s recent decision to strike down many of Trump’s tariffs, suggesting the ruling would have limited economic impact. “The decision could have a positive impact on spending and investment, but how large the impact may be and how long it could last is unclear,” he said. He noted that the administration is working to reimpose tariffs through alternative legal avenues, creating “considerable uncertainty over to what extent tariffs will continue.”

The Fed governor highlighted a puzzling economic contradiction: despite relatively robust economic growth, job creation was minimal throughout 2023. Waller suggested that even the modest employment gains reported earlier this month for last year might eventually be revised to negative territory.

“This would be the first time in my career, my life, that I saw an economy growing like this, and zero job growth,” Waller remarked. “I don’t even know quite how to think about this.” He suggested that hiring could accelerate in 2024, potentially resolving this inconsistency. Alternatively, pandemic-driven productivity improvements might explain how companies have maintained output with fewer workers.

Trump has intensified his criticism of the Federal Reserve following the recent GDP report showing economic growth slowed to an annual rate of 1.4% in the fourth quarter of 2023, down from 4.4% in the previous quarter. On Friday, he demanded “LOWER INTEREST RATES” in a social media post that also referred to Fed Chair Jerome Powell as “Two Late Powell” (misspelling his usual nickname “Too Late Powell”).

The Federal Reserve’s upcoming decisions will be closely scrutinized by financial markets, politicians, and economists as the central bank attempts to balance its dual mandate of price stability and maximum employment in an election year. With inflation showing signs of moderating and mixed signals from the labor market, the Fed’s policy choices in the coming months could significantly impact economic conditions heading into the presidential election.