Federal Reserve Governor Christopher Waller said he would not be surprised to see negative job growth in upcoming revisions, a development that could influence the central bank’s March interest rate decision. His comments highlight the fragile state of the labor market and underscore how closely policymakers are monitoring employment data before adjusting rates.
Speaking at a conference hosted by the National Association for Business Economists, Waller described the path forward as finely balanced. While January delivered stronger than expected hiring, he cautioned that a single month of improvement does not establish a trend.
A Coin Flip for March
Employers added 130,000 jobs in January, surpassing expectations and offering a measure of relief after a weak 2025. Waller said that if February’s report confirms a similar pace, it may justify holding the Fed’s benchmark rate steady at its current level of roughly 3.6 percent.
However, he emphasized that the outlook remains uncertain. If January’s gains are revised lower or February data disappoints, the case for a rate cut at the March meeting would strengthen.
“As things stand today, I rate these two possible outcomes as close to a coin flip,” Waller said, signaling that policymakers are divided between caution and action.
The Federal Reserve reduced interest rates three times late last year before pausing in January. Waller was one of two governors who dissented from the decision to hold rates steady at that time, favoring additional easing. His more measured tone now reflects how incoming data has complicated the picture.
The Puzzle of Growth Without Jobs
One of the more striking elements of Waller’s remarks was his suggestion that job growth figures for 2025 could ultimately be revised below zero. That would mark a rare instance of negative job growth occurring alongside steady economic expansion.
“This would be the first time in my career, my life, that I saw an economy growing like this, and zero job growth,” Waller said, pointing to the unusual divergence between output and hiring.
Recent data show that economic growth slowed to an annualized rate of 1.4 percent in the final quarter of last year, down from 4.4 percent in the previous quarter. Even so, overall output remains positive. The disconnect between expansion and hiring has prompted economists to examine whether productivity gains are allowing companies to maintain output with fewer workers.
Waller suggested that pandemic-era adjustments may have permanently altered workforce dynamics. Businesses invested heavily in automation and efficiency tools, potentially enabling them to sustain production levels without adding staff. If productivity remains elevated, it could partially explain the prospect of negative job growth despite ongoing expansion.
Tariffs, Legal Uncertainty and Limited Impact
Waller also addressed the economic implications of the Supreme Court’s decision to invalidate several tariffs imposed by President Donald Trump. He said the ruling could have a positive impact on spending and investment, but he characterized the likely effect as limited and uncertain.
The White House has signaled it may attempt to reimpose tariffs through alternative legal channels, creating what Waller described as considerable uncertainty. Given that ambiguity, he said the tariff ruling does not materially change his outlook on interest rates or inflation.
The broader policy backdrop adds pressure to the Fed’s decision making. After the latest growth figures showed a slowdown, Trump publicly criticized the central bank and called for lower interest rates, renewing tensions between the White House and the Fed.
Markets Watching the Labor Data
Financial markets now face a narrow window before the March meeting to assess whether negative job growth becomes a reality or remains a statistical anomaly. The outcome will influence borrowing costs across mortgages, auto loans and corporate credit markets.
If labor data stabilizes, the Fed may opt to hold rates steady to ensure inflation continues to moderate. If hiring falters, policymakers could move to cushion the economy with another rate reduction.
For now, Waller’s message is clear: the next employment report will carry outsized importance. With the decision described as a coin flip, investors and businesses alike are bracing for a data driven outcome that could set the tone for monetary policy in the months ahead.
