Federal Reserve Governor Christopher Waller has expressed concerns about the potential impact of new tariff policies on the US economy, calling it one of the most significant impacts in decades. Here's what he had to say ¹:
- *Tariffs and Inflation*: If the current average tariff rate of 25% persists, inflation could peak at nearly 5%. However, if the rate decreases to 10%, inflation might peak at 3%.
- *Interest Rate Cuts*: In scenarios involving large-scale tariffs, Waller would consider earlier and more substantial interest rate cuts if there's a notable economic slowdown. For smaller tariffs, the Fed might adopt a more patient approach, potentially implementing rate cuts in the latter half of the year.
- *Economic Outlook*: Waller believes the US economy is on a solid footing, with robust economic growth and a labor market near maximum employment. However, he notes that progress on inflation has stalled, and further reductions in the policy rate may be necessary to achieve the Fed's 2% inflation goal.
Waller's comments highlight the uncertainty surrounding the impact of tariffs on the economy and the potential need for the Fed to adjust its monetary policy stance in response.
