A key policymaker at the Federal Reserve, Christopher Waller, reiterated his support for interest rate cuts in 2025, despite persistent inflation and potential tariff impacts under the incoming Trump administration. Speaking at the Organization for Economic Cooperation and Development in Paris, Waller expressed confidence that inflation would approach the Fed’s 2% target in the coming months. He also downplayed the inflationary effects of anticipated tariffs.
Waller’s stance diverges from growing market expectations that the Fed might hold back on rate cuts this year due to stubbornly high inflation. He believes that further reductions are warranted, projecting that inflation will continue its downward trend toward the 2% objective. While acknowledging recent inflationary pressures, with November’s figure reaching 2.4% based on the Fed’s preferred measure, Waller argued that price increases are moderating outside of the housing sector.
The potential impact of tariffs remains a significant unknown for the U.S. economy. Financial markets have experienced volatility in recent months, partially fueled by concerns about sustained inflation and the potential for tariffs to exacerbate the issue. Producers often pass on increased costs from tariffs to consumers through higher prices. However, Waller offered a more optimistic perspective, suggesting that tariffs are unlikely to significantly or persistently affect inflation this year, and therefore shouldn’t alter his view on rate cuts.
Waller’s remarks contrast with Wall Street’s increasing anticipation that the Fed might limit or forgo rate cuts this year given persistent high prices. The current rate stands at approximately 4.3%, following several reductions last year from a two-decade peak of 5.3%. Current market pricing suggests only one rate cut is expected in 2025.
While Waller didn’t specify the number of cuts he advocates, he referenced the Fed’s December projection of two reductions for 2025. He emphasized that policymakers entertained a wide range of possibilities, from zero to five cuts, contingent on progress in curbing inflation. Fed Chair Jerome Powell has acknowledged the difficulty in predicting the precise impact of tariffs on Fed policy and inflation until the specific targeted imports and potential retaliatory measures from other countries become clearer. Waller’s position underscores the ongoing debate within the Fed regarding the appropriate monetary policy response to the complex interplay of inflation, potential tariff effects, and overall economic conditions. His confidence in continued disinflation and the limited inflationary impact of tariffs suggests a more dovish stance, favoring further rate cuts to support economic growth.
