NEW YORK, April 24 (Reuters) – Federal Reserve officials speaking in television interviews on Thursday indicated they see no urgency for a change in monetary policy as they seek more information to determine how the Trump administration’s trade tariffs are affecting the economy.
Fed Governor Christopher Waller said in a Bloomberg interview that given the cadence of the administration’s shifts on import taxes, it wouldn’t be until some time this summer that some sense of how this is playing out will start to emerge, which suggests no imminent change in monetary policy. That sense of patience on policy was shared by Cleveland Fed President Beth Hammack, who spoke on CNBC.
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“I don’t think you’re going to see enough happen in the real data in the next couple of months, until you get past July,” Waller said. “When you get to the second half of the year, I think we’ll start having better ideas what’s going to happen with the tariff world that the administration is considering.”
Waller reiterated his view that he believes the tariffs, which many economists, as well as central bankers, reckon will push up inflation while pushing down employment and growth, will have a one-time effect on price pressures. If it plays out like that and inflation does not prove enduring that suggests Fed policy may not need to react.
“The economics tells me that the tariffs are a one-time price level effect that’s going to pass through,” Waller said. Some of the inflation impact of higher import prices would be offset by weakening consumer demand, falling employment and negative hits to household wealth, he said, so when it comes to the rising inflation, “it may not be as high as people think.”
Waller said that navigating a one-time price jump without reacting would be challenging for the central bank given the pandemic experience of believing the inflation surge then was temporary, only to find out it wasn’t.
“It’s going to take some courage to stare down these tariff increases in prices with the belief that they are transitory,” Waller said. But, “the question is, what are the things that will cause this inflation to persist through the initial tariff increases? And I just have a hard time seeing exactly what that would be.”
Waller did note that if the economy weakened quickly that would change his monetary policy calculations.
“If I saw enough movement in the unemployment rate to make me think that things were going bad, or growth prospects started tanking, or consumer spending started really going down, then I’d be ready to go” with changes in interest rates, Waller said. “I wouldn’t be sitting here waiting to determine whether the inflation is transitory or not.”
A LITTLE PATIENCE
Over recent weeks a wide range of Fed officials have signaled that now is a time to be patient on the monetary policy front while taking in data to determine how the tariffs will influence economic momentum. Adding to the challenges is the president’s erratic implementation of the import tax, with some key levies paused after financial markets convulsed in reaction to their announcement.
Financial markets broadly expect the Fed to cut what is now a 4.25% to 4.5% federal funds target rate range as the year progresses and Fed forecasts from the March Federal Open Market Committee meeting also penciled in easings. Tariffs have made the calculus harder because higher inflation and a weaker economy argue for different policy responses and the Fed choosing which side of its inflation and job mandates matters more at the moment.
In her CNBC interview, Hammack called for patience on monetary policy amid high levels of uncertainty. But she did not rule out monetary policy changes by June if the data suggested action was needed.
“We’ll be watching the data carefully and I enter every meeting with an open mind about whether it’s a time that we should be continuing to be patient, or a time that we should take action,” Hammack said. “If we have clear and convincing data by June, then I think you’ll see the committee move, if we know which way is the right way to move at that point in time,” she said.
Hammack was asked if she could see the Fed easing at the May 6-7 Federal Open Market Committee meeting and appeared to lean strongly against that. “I think it’s too soon” to change interest rate policy next month, Hammack said.
The bank president also said she does not have a base case for the economy right now but is thinking of the outlook in terms of scenarios.
Reporting by Michael S. Derby; Editing by Chizu Nomiyama and Andrea Ricci
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