Federal Reserve's "Dove" Waller laments: The U.S. economy is incomprehensible!

On Monday, U.S. Federal Reserve Board Member Christopher Waller delivered a speech at the 42nd Annual Meeting of the National Association for Business Economics (NABE), during which he slightly adjusted his dovish stance while emphasizing that U.S. economic data are showing a confusing contrast.

As background, Waller has voted against the Federal Reserve’s rate decisions twice in the past six months, calling for U.S. monetary policymakers to pay more attention to signals of a weakening labor market.

However, with January’s non-farm payrolls adding more jobs than the previous nine months combined, Waller has softened his tone.

In his Monday speech, he stated that if February’s data can sustain the strong momentum seen in January, he will join most of his colleagues in supporting maintaining the current stance in March.

Waller said, “If these data support the judgment that the labor market improved in January and that this trend continues in February, and if inflation makes further progress toward the 2% target, then my outlook might become slightly more optimistic. My view on appropriate monetary policy could lean toward pausing at the upcoming meeting.”

But he also emphasized that the signals currently coming from the U.S. economy are contradictory, and even he feels confused.

Waller pointed out that overall, the U.S. may currently be in an extremely tricky phase of monetary policy-making. “This is the first time in my career, or even in my life, that I’ve seen such a situation: the economy is growing, but employment is zero,” he said. “I don’t even know how to interpret this because I’ve never seen such a scenario.”

He believes that this year, either employment growth will reappear, or “we are in an economic activity phase I have never seen before in my life.” He added, “Something has to be corrected.”

Based on the routine annual revision in the January non-farm employment report, the U.S. added only 181,000 non-farm jobs in 2025, averaging just 15,000 per month. Considering that the revision data only covers the first three months, and following the common pattern of overestimating U.S. employment figures, the numbers for the remaining nine months are likely to be significantly revised downward early next year.

Waller warned that the weak job creation in 2025 is the weakest since 2002, excluding recession periods. If the final data are revised to negative numbers, it would be only the third time since 1945 that this has happened. Therefore, “one month of good news does not constitute a trend.”

He also forecasted that if February’s employment figures are closer to the 2025 level, he is more likely to continue pushing for rate cuts, with the probability of both good and bad outcomes being “almost a coin flip.”

On Monday, Waller also mentioned that the U.S. Supreme Court ruling that the tariffs imposed last year by President Trump under the International Emergency Economic Powers Act (IEEPA) were illegal could have a positive impact on consumer and business demand, but the extent and duration of this effect remain uncertain. He also questioned whether, if tariff-related costs decrease, companies will actually lower prices, or if prices will stay unchanged under the influence of a new round of tariffs imposed by Trump.