Federal Reserve Governor Christopher Waller isn't mincing words about what the central bank should do next. Speaking in London on Monday, he made a straightforward case for cutting interest rates at the Fed's December meeting, and his reasoning comes down to one thing: the labor market looks wobbly.

The Labor Market Takes Center Stage

Waller's primary concern is what he calls a "weak labor market," and he's willing to look past inflation worries to address it. "I am not worried about inflation accelerating or inflation expectations rising significantly," Waller said in prepared remarks.

Here's where things get interesting. The federal government just went through a 43-day shutdown that delayed crucial economic reports, which you'd think would leave policymakers stumbling around in the dark. Not so, says Waller. He insists the Fed isn't "flying blind" because there's a "wealth of private and some public-sector data" that gives them an "actionable picture" of what's actually happening.

And that picture? It shows a job market that's "still weak and near stall speed." Waller points to private-sector sources like ADP payroll data and surveys showing companies expect dismal job prospects for 2026 college graduates. His diagnosis: this is a demand problem, not a supply issue. "The overwhelming share of the data I have… supports the weaker demand story," he explained.

When Stock Market Gains Don't Create Jobs

On the inflation side of the Fed's dual mandate, Waller argues that underlying inflation is "relatively close" to the 2% target when you strip out tariff effects. Despite five years of above-target inflation, he notes that medium and longer-term inflation expectations remain "well anchored."

Waller also highlighted the squeeze on American consumers, particularly "middle- and lower-income consumers" who are dealing with record-low housing affordability and steep auto prices.

Then there's the disconnect between Wall Street and Main Street. Sure, the stock market is "booming," but here's the kicker: the AI-related businesses driving those gains account for less than 3% of total employment. Translation: most Americans aren't seeing much benefit from the artificial intelligence frenzy.

Insurance Policy Against Further Weakness

Waller frames his December rate cut recommendation as "risk management." A 25-basis-point cut, he argues, "will provide additional insurance against an acceleration in the weakening of the labor market and move policy toward a more neutral setting."

Markets aren't entirely convinced, though. According to the CME Group's FedWatch tool, traders are pricing in just a 46.6% likelihood of a rate cut at the December meeting.

The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq 100 respectively, both closed lower on Monday. SPY dropped 0.93% to $665.67, while QQQ declined 0.85% to $603.66. Futures for all three major indices were trading lower on Tuesday following Monday's sharp sell-off.