The Fed signals caution with two dissents for cuts
Dovish hold, hawkish nomination?
As widely anticipated, the FOMC held the Fed Funds rate steady at 3.50-3.75% at the January meeting. Still, the decision was not without some surprises, the most important of which was that there was not one (Gov. Miran) but two (Gov. Waller) votes in favor of a 25-bp cut. In a statement explaining his dissent, Governor Waller emphasized downside labor market risks in a rather emphatic manner:
In a statement explaining his dissent, Governor Waller emphasized downside labor market risks in a rather emphatic manner: “Compared to the prior ten‑year average of about 1.9 million jobs created per year, payrolls increased just under 600,000 for 2025. And, last year’s data will be revised downward soon to likely show that there was virtually no growth in payroll employment in 2025. Zero. Zip. Nada. […] Let this sink in for a moment—zero job growth versus an average of almost 2 million for the 10 years prior to 2025. This does not remotely look like a healthy labor market.”
We have a lot of sympathy for this viewpoint, which is why our baseline expectation is for three Fed rate cuts this year. If anything, the latest Conference Board consumer confidence data highlights these risks.
The labor differential, which measures the difference between the share of respondents saying jobs are “plentiful” and those who say jobs are “hard to get,” plunged 5.3 points to 3.1, the lowest level since February 2021.
The two measures are now very close to crossing over each other in a manner that in the past has signaled broader economic troubles. The labor market remains the prominent issue to watch over the next few months.
In separate news, President Trump nominated Kevin Warsh for Federal Reserve Chair, an announcement that triggered deep selloffs in dollar debasement plays like gold and silver on the basis of more hawkish policy expectations.
However, the reaction may be overstated, given that the fragile labor market conditions support some further easing irrespective of who the new Fed Chair is.
