The Federal Reserve's interest rate cut path is now divided: Waller advocates a gradual 25 basis point pace, while Milan insists on a more aggressive 50 basis point easing.

Federal Reserve Governor Christopher Waller said officials can continue to cut interest rates by 25 basis points to support the weak labor market, while newly appointed Governor Stephen Milan continues to advocate for larger rate cuts. Waller said in an interview on Thursday, "We don't want to make mistakes, so the prudent approach is to take a 25 basis point cut, wait and observe the market reaction, and provide clearer basis for subsequent decisions." Federal Reserve Chairman Jerome Powell earlier hinted that officials are expected to cut interest rates by 25 basis points again at the end of this month's meeting. This would be the Fed's second rate cut this year to address a sharp slowdown in job growth. However, several policymakers emphasized the need to remain vigilant about inflation risks as the current inflation rate is still above the Fed's 2% target. In another interview, Milan reiterated his view of a larger 50 basis point rate cut. Currently on leave from his position as Chairman of the White House Economic Advisory Committee, Milan's term as a Fed Governor will end in January next year. Milan reaffirmed his view that the recent escalation of tensions in U.S.-China trade brings more downside risks to the economy and requires rapid monetary policy easing. "If monetary policy remains at its current restrictive level and the economy faces such shocks, the negative consequences will be significantly amplified," he supported a 50 basis point rate cut at the October 28-29 meeting but acknowledged that officials are likely to continue with the 25 basis point cut from September. "It is expected that three 25 basis point rate cuts could be implemented this year." Waller voted last month with the majority of his colleagues to cut the benchmark rate by 25 basis points to a target range of 4%-4.25%, while Milan was the sole dissenter advocating for a larger 50 basis point rate cut. Data Conflict In another event later on Thursday, Waller further explained his view that policymakers should be cautious and highlighted the conflict between data showing strong economic growth and other data indicating a weak labor market. He stated that officials should focus on the labor market as he believes inflation - unaffected by President Donald Trump's tariffs - is moving towards the Fed's 2% target. In remarks prepared for a New York Foreign Relations Committee event, Waller said the Fed "should cut the policy rate by 25 basis points again at the meeting ending on October 29." "But afterwards, I'll be watching how strong GDP data aligns with the weak labor market." Waller said the federal government shutdown could lead to a drop of several percentage points in the GDP growth rate this quarter, but if the shutdown is resolved in the coming weeks, the economy could likely rebound by the same amount in the first quarter of 2026. He said, "But if the government shutdown continues for a longer period and results in permanent personnel and spending cuts, the drag in the fourth quarter could be greater, and the rebound may be smaller." Waller is a potential candidate to succeed Powell as the next chair. Treasury Secretary Scott Bernt said this week that the list of candidates has been narrowed down to five and plans to submit the final candidate to President Trump after Thanksgiving. Waller revealed on Thursday that his interviews with Bernt have been progressing smoothly, with in-depth discussions on the economy, Fed balance sheet, and markets, but has not yet communicated with Trump about the position.