Fed's Waller calls March interest-rate cut 'a coin flip'

Federal Reserve Governor Christopher Waller said he’ll vote to cut interest rates at the central bank’s meeting next month, depending on upcoming data reflecting the labor market.

It may be appropriate to keep rates steady when the Federal Open Market Committee meets March 17-18 — if the February labor market data show, as they did in January, that downside risks to the labor market have diminished, Waller said.

That decision will most likely prompt a slew of vocal criticism from President Donald Trump, who has been demanding the independent central bank slash benchmark interest rates to 1% or lower since taking office in January 2025.

But Waller also said labor-market data may influence his decision to support another cut in the benchmark Federal Funds Rate, currently paused at 3.50% to 3.75%.

“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,” he said Feb. 23 in prepared remarks for an event with the National Association for Business Economics.

“As things stand today, I rate these two possible outcomes as close to a coin flip,” he said.

The FOMC voted 10-2 to hold interest rates steady at 3.50% to 3.75% in January after three consecutive quarter-point cuts in its last three meetings of 2025.

The Federal Funds Rate guides interest rates for investors and consumers on auto and student loans, home-equity loans, and credit cards.

For consumers, a delayed rate cut could mean higher borrowing costs that remain in place longer than expected.

Waller and Fed Governor Stephen Miran dissented, saying they would have preferred a quarter-point cut due to softening in the labor market.

It was the FOMC’s first pause since July 2025.

The Fed’s dual congressional mandate requires it to balance full employment and price stability.

• Lower interest rates support hiring but can fuel inflation.

• Higher rates cool prices but can weaken the job market.

The two goals often conflict, operate on different timelines and are influenced by unpredictable global events.

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After the December rate cut, Fed Chair Jerome Powell said that the lowering of rates brought monetary policy “within a broad range of neutral.”

A neutral rate neither stimulates nor restrains economic growth.

The Fed last paused interest rates in September 2023, holding the funds rate at 5.25% to 5.50% after a rapid tightening cycle aimed at curbing post-pandemic inflation.

The pause lasted nearly a year as policymakers wanted to see if the higher borrowing costs would tame inflation without dipping the economy into a recession.

During that pause, inflation gradually cooled and the labor market remained resilient.

The central bank resumed cutting rates in September 2025 once Fed officials became confident that inflation was moving sustainably toward the Fed’s 2% target.

Waller dissented from the Fed’s decision in January to leave its benchmark policy rate unchanged, saying he preferred a quarter-point reduction because of signs of continued softness in the labor market.

As TheStreet reported, the government’s employment report for January subsequently came in much hotter than economists and traders expected.

• Payrolls rose by the most in more than a year to 130,000, beating estimates of 55,000.

• The unemployment rate unexpectedly fell to 4.3% from 4.4%.

Waller said he welcomed the positive figures in January, but said he has concerns they “may contain more noise than signal,” particularly because data revisions in the report also showed job creation in 2025 was close to zero.

He said that suggests the job market over 2025 was “weak” and “fragile.”

The Fed governor, a Trump appointee, also addressed a conundrum many economists have identified about the current K economy: Growth is relatively solid, yet employers added few, if any, jobs last year.

According to Waller, even the meager gains reported earlier this month for last year will be eventually revised to below zero.

Related: Fed officials signal shocking twist on interest-rate cuts

“This would be the first time in my career, my life, that I saw an economy growing like this, and zero job growth,” Waller said in a moderated discussion following his remarks according to The New York Times. “I don’t even know quite how to think about this.”

He also said that hiring could pick up this year and largely resolve the contradiction.

The Bureau of Labor Statistics is due to release its February employment report on March 6 and the Consumer Price Index on March 11.

President Trump attacked the Fed on Feb. 20 in a TruthSocial post after the government reported that the economy grew more slowly in the final three months of last year than in the summer and fall.

GDPslowed to an annual rate of 1.4%, down from 4.4% in the fall.

“LOWER INTEREST RATES,” Trump posted. “’Two Late’ Powell is the WORST!!” he added, misspelling his usual nickname for Powell, whom he has referred to previously and frequently as “Too Late,” among other insults.

Trump has said that lower interest rates will jump-start the stagnant housingmarket and reduce the level of interest on the $38.56 trillion federal debt.

The Fed’s preferred inflation model is the Personal Consumption Expenditures (PCE) Price Index, and the most recent headline comes from the December 2025 report showing PCE at 2.9%, up from 2.8% in November.

Tony Welch, chief investment officer at SignatureFD, told TheStreet that the most recent PCE data show inflation remaining sticky around the 3% level, which will keep “the Fed in a holding pattern.”

“Services inflation remains the key friction point, and while it is improving directionally, it has not slowed enough to justify a near-term policy shift,’’ Welch said. “The implication is a longer window of ‘higher for longer’ policy than markets had priced late last year, even as the overall trajectory remains disinflationary.”

The CME Group Fed Watch tool shows a 96.1% likelihood that the FOMC will hold rates steady in March. Markets are expecting two rate cuts in 2026, forecasting June and possibly December.

Waller also said he doesn’t yet see artificial intelligence significantly impacting productivity across the economy. He added that recent strong trends could be due to a number of factors, including shifting work arrangements following the Covid pandemic.

“The growth and productivity we’ve seen over the last year or two isn’t from AI,” he said in a question-and-answer session following his remarks, according to Bloomberg.

“I don’t think any of us believe that that’s a big driver for productivity growth in the aggregate numbers,” Waller said.

Waller, also during the Q&A session, weighed in on the Fed’s $6.6 trillion balance sheet.

It has grown in size both because of the central bank’s asset purchases to support the economy during crises, and the Fed’s embrace of an “ample” system under which banks hold more reserves, boosting liquidity in the financial system, he said.

Kevin Warsh, President Trump’s nominee to be the next Fed chair, and Treasury Secretary Scott Bessent are among critics of the Fed balance sheet’s size.

They want the central bank to have a much smaller footprint in the markets.

But Waller said returning to a “scarce” reserves regime isn’t desirable.

“You don’t want banks every night of the day digging around in the couch cushions, looking for money. This is massively inefficient and stupid,” he said.

The Fed’s next move hinges less on political pressure and more on whether the labor market confirms resilience or reveals fresh cracks.

If hiring weakens and inflation remains sticky near 3%, the data-driven FOMC policymakers may find themselves balancing competing risks with little margin for error.

As for markets, the real question is no longer when interest rates will fall, but whether the economic data will force the Fed’s decision.

Related: Fed official signals surprise rate-cut shift

This story was originally published by TheStreet on Feb 23, 2026, where it first appeared in the Fed section. Add TheStreet as a Preferred Source by clicking here.