Two Federal Reserve officials are worried about the job market — more so than inflation.

Fed Governor Chris Waller said Monday that he supports cutting interest rates next month because he’s more worried that the job market is weakening than inflation accelerating. Waller noted that it’s unlikely the September jobs report later this week or any other data in the next few weeks would change his view that another cut is in order.

“The data leads me, at this moment, to support a cut in the FOMC’s policy rate at our next meeting on December 9 and 10 as a matter of risk management,” Waller said in a speech titled, ‘The Case for Continuing Rate Cuts.’

“A December cut will provide additional insurance against an acceleration in the weakening of the labor market and move policy toward a more neutral setting.”

Meanwhile, Fed vice chair Philip Jefferson said Monday that downside risks to employment have increased compared to upside risks to inflation, but that the central bank should move "slowly" when it comes to cutting rates.

The two speeches join the growing conversation about what the Fed may do at its final policy meeting of 2025. In recent weeks, several other Fed officials have expressed growing reservations about cutting interest rates for a third time this year, citing inflation concerns.

For his part, Waller said data "fog" is not a good reason to not be cutting and he believes that the labor market is "still weak and near stall speed."

He said the drop in payroll growth is being driven by both weaker demand for workers and weaker supply of workers due to lower immigration, but that weaker demand is the greater force. He noted that he’s not seeing or hearing evidence of an acceleration in wage growth, an increase in job openings, or a rise in the quits rate that would lead him to believe weaker payroll growth is a result of a lower number of workers in the job market.

Waller pointed to data from the Labor Department from May through August that showed job creation in the US stalled. He believes with revisions, it’s likely that employment actually fell over that period.

"The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy," Jefferson said in a speech in Kansas City. "The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate."

Jefferson stressed that heading into the Fed's next policy meeting, on Dec. 9 and 10, it remains unclear how much government data the officials will get, and while he always takes a "meeting-by-meeting approach," this is "an especially prudent approach" now.

The Labor Department announced it will release the September jobs report on Thursday, but it's unclear what, if any, other data will be released before Fed officials meet.

While Jefferson indicated that inflation may have stalled around 3% due to tariffs, he said he still thinks it's reasonable to expect this to be a one-time increase in prices, rather than an ongoing inflation problem. He added, however, that he is watching the situation carefully.

Read more: How jobs, inflation, and the Fed are all related

He sees a gradual cooling in the job market, acknowledging the lack of official government data, but pointed to unemployment insurance claims received from states that has largely moved sideways in recent weeks. He also noted that anecdotal evidence about the job market has been mixed.

On inflation, Waller said data through September continued to show relatively small effects from tariffs and support his hypothesis that tariffs are having a one-off effect raising price levels in the U.S. and are not a persistent source of inflation. Excluding tariffs, Waller believes inflation is close to the FOMC’s 2% inflation goal.

Waller is also taking signals from “soft” data, or surveys, which he says tend to lead to “hard,” official data. He flagged consumer sentiment measured by the University of Michigan, which plunged in October to near its record-low reading, noting that a drop in consumer sentiment has happened heading into recessions.

He noted that deteriorating consumer sentiment in the University of Michigan survey was widespread among different demographic groups, with the exception of those who own stocks.

Jefferson and Waller's comments come as the Fed looks increasingly divided on whether to cut rates further. Other voting members, including Kansas City Fed president Jeff Schmid and Boston Fed president Susan Collins, have expressed concern about inflation and a preference to hold rates steady.

Markets are pricing in just a 42% chance of a rate cut next month, down from a 94% chance about a month ago.

Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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