By Matt Grossman
A short-lived bump in tariff-driven inflation could pass quickly enough to allow U.S. interest-rate cuts later this year, especially if tariffs themselves ease, Fed governor Christopher Waller said.
New trade barriers are likely to push up prices in the short term, Waller said in a speech at a conference in Seoul, South Korea Monday morning local time. But the inflation probably won’t stick around as stubbornly as it did in the early 2020s, in part because labor-market tightness and government stimulus are no longer pushing the economy to its limits, Waller said.
That could put the Federal Reserve in position to cut interest rates later this year not because the economy is faltering, but because inflation will be under control, Waller said.
“I would be supporting ‘good news’ rate cuts later this year” assuming that tariffs level are moderate and inflation and unemployment look healthy, Waller said, according to a published text of his speech.
The Fed has held interest rates steady so far in 2025 at 4.25% to 4.5% after lowering them by a percentage point over the last four months of 2024. Those cuts came as rising unemployment suggested the Fed might need to cushion a slowing economy. Investors widely expect the central bank to stand pat once more at its next meeting on June 17-18.
In 2025, unemployment has stayed in check at 4.2% through April, and the Fed’s preferred measure of inflation has come down to just a hair above target, at 2.1% over the past 12 months. The central bank’s policy committee entered the year projecting further rate reductions, but the White House’s steep and fast-changing new tariffs have left Fed officials reluctant to ease monetary policy before seeing how the trade barriers affect the economy.
Waller has set himself apart from his colleagues by emphasizing his preference for returning to rate cuts in 2025 in recent remarks. To be sure, the median Fed policymaker forecast two rate cuts this year at the central bank’s March meeting, before President Trump rolled out his broad program of bilateral tariffs. But in their own comments since then, most Fed officials have been hesitant to lay out the path to more cuts, saying they want to see more data before they settle on their next move.
Trump has lambasted Fed Chair Jerome Powell for his reluctance to cut rates, most recently in a private meeting at the White House last week. Trump has walked back his threats to fire Powell but will get to nominate Powell’s successor as Fed chair next year.
Write to Matt Grossman at [email protected]
(END) Dow Jones Newswires
06-01-25 2015ET
