Waller unintentionally takes himself out of the running for top job
August 29, 2025
*****************
–Waller says he favored a 25 bp cut in July and wants to ease in Sept. No surprise there. He is squarely focused on weakness in the labor market. A couple of lines from the speech:
After accounting for these revisions and what we will learn in a couple of weeks, the data are likely to indicate that employment actually shrank over those three months.[May, June, July]
Based on the median of FOMC participants’ estimates of the longer-run value of the federal funds rate, neutral is 125 to 150 basis points lower than the current setting.
https://www.federalreserve.gov/newsevents/speech/waller20250828a.htm
–So if neutral is 1.375% lower then FF should go to 3%. Well what do you know? Red SOFR pack (1 year forward) settled yesterday at 97.005, or 3%. I suppose that takes him out of the running for Fed Chair because Trump wants a 1% FF rate.
I was going to avoid saying anything more about the Lisa Cook dismissal, but here’s an amusing headine from FT:
‘Lisa Cook, the Fed Governor battling Trump’ (with a flattering picture of Cook as if she’s a beacon of hope against evil).
There’s a video of her calling Trump a fascist and she doesn’t deny committing mortgage fraud. You’re fired. Duh.
I don’t know how many times in this business I have heard: ‘Don’t do anything that might even APPEAR to be a conflict of interest’. The old membership rule at the CME was ‘don’t do anything that might damage the reputation of the exchange.’ There’s no ‘battle’. Just removal.
After having steepened Wednesday, the curve was flatter in light trade yesterday. 2y yield rose 1.2 bps to 3.633% and tens fell 3.3 to 4.205%. New low in SFRZ5/Z6 one-year calendar to -80, down just 0.5 (9621.5/9701.5).
–PCE Prices today expected 0.2 m/m and 2.6% yoy from 2.6. Core expected 2.9% yoy from 2.8%. Inflation is second fiddle. Employment is JOB 1. (note on German employment below)
Frankfurt (Germany) (AFP) – German unemployment topped three million in August for the first time in over a decade…
Over 110,000 jobs have been lost in German industry in the past year alone, a report released Tuesday by consultancy EY said, with about 50,000 of them coming from the car industry.
