Federal Reserve Governor Christopher Waller signaled openness to interest rate cuts later in 2025, despite potential inflationary pressures from new tariffs imposed by the Trump administration.
Speaking at a conference in Seoul, Waller said he is inclined to “look through” any short-term inflation impacts that may arise from the import taxes, so long as underlying inflation trends continue to improve.
“I support looking through any tariff effects on near-term inflation when setting the policy rate,” Waller stated.
He emphasized that tariff-induced inflation is unlikely to be persistent, and if inflation trends toward the Fed’s 2% target while the labor market remains strong, he would support what he called “good news” rate cuts.
Risk-on assets, such as Bitcoin, are set to surge once the Fed substantially slashes rates.
Waller’s stance suggests that monetary policy could remain flexible even as trade tensions inject volatility into the economy.
The Fed governor said that the strength in the labor market and the progress in inflation through April provide him “additional time to see how trade negotiations play out and the economy evolves” before determining the next steps on rates.
His comments underscore the ongoing uncertainty surrounding U.S. trade policy, especially with the Trump administration’s unpredictable shifts in tariff levels and timing.
Tariff-related legal challenges also introduce another layer of unpredictability, raising doubts about the Fed’s ability to make rate adjustments in the near future.
The current federal funds target range remains between 4.25% and 4.5%.
Waller appears more open to policy shifts than some of his peers at the Fed, who have preferred a wait-and-see approach as they monitor the evolving economic landscape.
Short-Term Impacts and Risks Identified
While the U.S. economy has yet to show significant negative effects from the latest round of tariffs, Waller cautioned that this could change in the second half of 2025.
He warned of potential downside risks to both economic activity and employment, while also acknowledging upside risks to inflation.
“Higher tariffs will reduce spending, and businesses will respond, in part, by reducing production and payrolls,” he explained.
Waller noted that inflation driven by tariffs would likely be a one-time effect, mostly concentrated in late 2025.
He suggested that if duties remain modest—around 10%—consumers might not bear the full brunt of the price increases.
He also mentioned that the probability of an aggressive or large-scale tariff regime has declined, offering some relief.
Waller drew parallels between the current situation and the early pandemic period, when many believed inflation would be transitory.
“What often has people spooked is we had the same view in 2021, that all this stuff was transitory… and that just turned out to be wrong,” he remarked.
While caution is warranted, Waller’s overall message was one of patience and readiness to act if the data continues to support monetary easing.