Fed Governor Miran wants a half-point cut this month, while Waller backs another quarter-point move

Federal Reserve Governors Stephen Miran and Christopher Waller expressed divergent views on the pace of upcoming interest rate cuts, despite a general consensus for further easing. Miran advocates for a more aggressive 50-basis-point reduction at the next FOMC meeting, citing a weakening labor market and geopolitical tensions, though he anticipates a 25-basis-point cut will prevail. Waller, aligning with the broader Fed consensus and market expectations, supports a cautious 25-basis-point cut to prevent reigniting inflation, while acknowledging the need for further action if labor market softening continues. This internal debate highlights the Fed's complex challenge in balancing economic growth, inflation pressures, and labor market signals, exacerbated by a government shutdown hindering data availability.

Analysis

Federal Reserve Governors Miran and Waller presented divergent views on the pace of upcoming interest rate reductions, despite a clear consensus for further easing. Miran advocates for a more aggressive 50 basis point cut at the October 28-29 FOMC meeting, citing a weakening labor market and escalating US-China geopolitical tensions. Conversely, Waller, aligning with broader Fed consensus and market expectations, supports a cautious 25 basis point reduction to mitigate inflation risks.

This internal debate highlights the Fed's complex challenge in reconciling a softening labor market with solid GDP growth and persistent inflation pressures, partly exacerbated by tariffs. Waller emphasizes avoiding a rekindling of inflation, while acknowledging the need for more substantial cuts (up to 1.25 percentage points) if the economic picture darkens significantly. The government shutdown further complicates decision-making by hindering crucial economic data availability.

Markets are currently pricing in a nearly 100% probability of a 25 basis point cut at the next meeting, consistent with Waller's stance and September FOMC indications of two more cuts this year. Miran, despite his preference for 50 bps, also anticipates three 25 bps cuts this year, totaling 75 basis points. The Fed's dovish tone, despite mixed views on magnitude, suggests continued easing is the base case, with the extent dependent on evolving economic data and geopolitical developments.

Key Decisions for Investors

• Investors should closely monitor the October 28-29 FOMC meeting outcome and accompanying forward guidance, as a 25 basis point cut is largely priced in, but any deviation could trigger market volatility.
• Pay critical attention to the release of delayed economic data, particularly labor market and inflation figures, as these will be pivotal in shaping the Fed's subsequent monetary policy decisions beyond the immediate cut.
• Assess portfolio positioning for interest rate sensitivity and potential geopolitical risk exposure, given the Fed's dovish bias and concerns over US-China tensions, which could influence future easing cycles.