Federal Reserve Governor Christopher Waller has announced his support for an interest rate cut during the upcoming central bank policy meeting scheduled for September 17-18. This significant shift in monetary policy perspective was reinforced by Waller's remarks, which highlighted the progress made in reducing inflation and the observed moderation in the labor market. His comments were made following the release of a weaker-than-expected nonfarm payrolls report on Friday, which bolstered the argument that the pace of hiring is indeed slowing down.

Waller's advocacy for a rate cut represents one of the clearest indications that the Federal Reserve is poised to ease its policy. He noted, "Given the progress on reducing inflation and the moderation in the labor market, I think it's time to lower the federal funds rate at our next meeting." This sentiment is consistent with the verbiage employed by Federal Reserve Chair Jerome Powell in late August, suggesting that the "time has come" for adjustments to monetary policy.

Highlighting the data from the Labor Department, it was reported that job growth reached 142,000 in the previous month, slightly higher than July but falling short of the 161,000 forecast by Dow Jones. This further amplified the perception that the hiring pace is weakening, supporting Waller's advocacy for a rate cut.

Waller did not specify the magnitude or frequency of the expected rate cuts. However, he emphasized that the Federal Reserve must remain responsive to economic conditions, stating, "Determining the pace of rate cuts and ultimately the total reduction in the policy rate are decisions that lie in the future." Importantly, Waller acknowledged being open-minded about the size and pace of cuts, asserting that if the data suggests the need for larger cuts, he would support them to maintain labor market stability and progress toward the central bank's 2% inflation goal.

He added that if the labor market deteriorates more quickly than anticipated, the Fed should act with larger cuts to increase the chances of achieving a "soft landing." Waller also expressed his belief that this potential rate cut would not be an isolated event, suggesting a likelihood of multiple reductions as the Federal Reserve aims to balance inflation and employment levels near its long-term objectives.

Market responses to Waller's comments and the recent labor data have leaned towards a higher probability of a quarter percentage point rate cut in the forthcoming meeting. Additionally, further aggressive moves are anticipated later in the year, with potential half-point reductions forecasted for November and possibly another in December, according to the CME Group's FedWatch measure.

In conclusion, Governor Waller's advocacy for an interest rate cut underscores a shift in the Federal Reserve's approach amid cooling inflation and a moderating labor market. His openness to potentially larger cuts if required signals a flexible and responsive policy stance as the central bank navigates toward achieving its long-term economic goals.