Fed governor breaks ranks with Powell, signals rate cuts could begin next month

The Federal Reserve has held off on cutting interest rates in 2025 to date, although one member of the board of governors is signaling that could change as early as next month.

Federal Reserve Governor Christopher Waller said in a Friday interview with CNBC's "Squawk Box" that he believes the central bank is in a position to start lowering rates starting next month.

"I think we're in a position that we could do this as early as July," Waller told the outlet. "That would be my view, whether the committee would go along with it or not."

Waller's remarks come after the Fed on Wednesday announced it would hold its benchmark interest rate steady at a range of 4.25% to 4.5% for the fourth consecutive meeting. Fed Chair Jerome Powell said the central bank is monitoring inflation data and the labor market amid the uncertainty created by the Trump administration's tariff policies.

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Powell explained that the Fed's "current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments." 

He added that the labor market is "at or near maximum employment" while persistent inflation remains "somewhat above our 2% longer-run objective."

Waller's view is that the central bank shouldn't wait for a deterioration in the labor market to take action, arguing that, "If you're starting to worry about the downside risk [to the] labor market, move now, don't wait. Why do we want to wait until we actually see a crash before we start cutting rates?" 

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"So I'm all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting, because we don't want to wait till the job market tanks before we start cutting the policy rate," Waller told CNBC, adding that the Fed should "start slow" in lowering interest rates "just to make sure that there's no big surprises."

"We've been on pause for six months to wait and see, and so far, the data has been fine," Waller said. "I don't think we need to wait much longer, because even if the tariffs come in later, the impacts are still the same. It should be a one-off level effect and not cause persistent inflation."

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President Donald Trump has been a vocal critic of the Fed's reluctance to cut interest rates in the face of economic uncertainty that stems in large part from tariffs and trade policy. 

Trump has also lambasted Fed Chair Powell, calling him a "stupid person" and "numskull" in recent weeks as he lobbies for interest rate cuts.

Following Waller's comments, the odds of a rate cut at the Fed's next meeting in July ticked slightly higher but remained a relative long shot, rising from 12.5% to 14.5%, according to the CME FedWatch tool, which tracks the probability of rate moves.

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The tool showed that the market sees the subsequent meeting in September as a more likely time for the next rate cut, with a 61.8% chance of a 25-basis point cut at that meeting.