Federal Reserve Governor Christopher Waller on Monday said that the Fed’s decision on interest rates for March is a coin toss. He further explained that it depends on whether February’s labor market report, due for release in less than two weeks, is similar to January’s strong performance.
Speaking at the 42nd Annual NABE Economic Policy Conference in Washington, Waller clarified that it might be appropriate to hold interest rates steady when the Federal Open Market Committee (FOMC) meets on March 17–18.
“As things stand today, I rate these two possible outcomes as close to a coin flip,” Waller summarized.
According to the CME Group Fed Watch tool, there is already a 96.1% probability that the FOMC will hold interest rates steady next month, with two rate cuts happening in June and December this year.
Why Waller’s Shift Matters
Waller’s change of heart represents a major policy shift. He argued during the last meeting that the FOMC should ease monetary policy because of a weak labor market. Therefore, the short-term interest rate was set at approximately 3.6%.
So, what changed? The January labor market report revealed that employers added 130,000 jobs, which could be a factor. Waller was also quick to point out that this may be a one-time blip and that this month’s numbers may be dissimilar.
Evidently, the Bureau of Labor Statistics and Consumer Price Index data on employment scheduled to be released on March 6 and 11, respectively, would influence Waller’s vote.
The State of the Economy
Waller has been open about the state of the economy. In 2025, the U.S. nonfarm payrolls saw little or no growth, a far cry from the near two million average over the preceding decade. He believes those numbers will actually come in negative once the details of the data are known, Waller said of the meager growth.
Waller acknowledged the Q4 2025 U.S. GDP growth at 1.4%, weighed down by a roughly 1-percentage-point drag from last year’s government shutdown. “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. “I don’t even know quite how to think about this.”
He expects growth above 2% for the first half of 2026.
The Tariff Wild Card
Regarding the recent Supreme Court decision to invalidate the majority of Trump’s import tariffs, Waller says he expects the effect to be limited on the interest rate. He further claimed that the White House is aiming to reimpose the tariffs, leaving uncertainty on what the interest rate could be.
Waller added that inflation, although still somewhat high in part due to tariff-related factors, is close to the FOMC’s 2% target when those factors are factored out.
What This Means for Rate-Sensitive Investments
Investors who have portfolios that are most impacted by interest rates should note the following investments.
Real Estate Investment Trusts: They are very sensitive to interest rates because they are highly levered and offer a competitive yield to bonds. A hold could continue to weigh on stocks, while a cut would initiate a rally within the sector.
Utilities: The regulated utilities, such as NextEra Energy and Duke Energy, are likely to underperform as long as rates remain high, since their yields appear relatively less attractive by comparison.
Regional Banks: While it is supportive of net interest margins, keeping the interest rate constant also implies a weaker labor market. Fed Governor Waller highlighted this as a risk, which can increase loan default rates and pressure earnings.
Bottom Line
The Federal Reserve Board of Governors’ next decision relies on the data, and not in the way that “data-dependent” has become a meaningless Fed euphemism. Waller, who was previously the most vocal advocate for rate cuts on the FOMC, now thinks it’s a coin flip. The February employment report on March 6th is an important piece of data that investors should mark on their calendar. If employment growth accelerates again, the case for holding steady strengthens, and rate-sensitive areas continue to face a challenging environment. Otherwise, Waller might reverse course and go back to his January stance, advocating for a rate cut that could propel a rally in real estate investment trusts, utilities, and rate-sensitive growth stocks.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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