Federal Reserve Governor Christopher Waller has left the door open for a potential interest rate cut later in 2025, even as President Trump’s new tariffs may cause a temporary spike in inflation. Speaking at an event in Seoul, South Korea, Waller said that any price increases caused by the new trade barriers are likely to be short-lived, and that if inflation continues trending toward 2% and the labor market remains strong, he would support a rate cut “in the spirit of good news.”

Tariffs Are Pushing Inflation Up—But Only Temporarily

According to Waller, new tariffs are expected to slow down both economic activity and job creation, but the inflationary effect should be short-term. If tariffs remain moderate—around 10%, he believes that much of the cost increase won’t be fully passed on to consumers. He also suggested the risk of larger-scale tariffs has decreased.

However, Waller warned that the full economic impact of these tariffs could be felt in the second half of 2025. Trade policy changes may affect both growth and employment, as higher import taxes reduce consumer spending and force businesses to cut back production and jobs.

Labor Market and Inflation Give Fed Time to Wait

Thanks to a resilient labor market and cooling inflation in April, Waller said the Fed has more time to monitor developments and doesn’t need to rush decisions on interest rates. If core inflation continues moving closer to the 2% target, and employment remains steady, rate cuts could be justified.

Trump’s Trade Strategy Adds Uncertainty

Waller’s comments come amid heightened uncertainty over Trump’s evolving trade policy. The President’s actions on tariffs have been unpredictable, with shifting timelines and rates, and the entire program is facing legal challenges.

Many economists warn that the new tariffs could bring about higher inflation and slower growth, a combination known as stagflation, which would limit the Fed’s ability to lower rates. Currently, the federal funds rate stands between 4.25% and 4.50%.

Waller: This Isn’t 2021 Again

The Fed governor addressed fears that inflation could once again be misjudged as “transitory,” like during the pandemic. “Yes, we were wrong in 2021—but today’s situation is different,” he said. The factors that caused prolonged inflation back then are no longer present.

Waller emphasized that he relies more on professional forecasts and market indicators than on public surveys when assessing inflation expectations. So far, he said, there hasn’t been a significant shift in market outlooks.

Bond Yields Reflect Investor Caution

Waller also pointed to rising U.S. bond yields, which he said reflect growing concerns about the national debt and waning interest from foreign investors. “It seems like foreign buyers of U.S. assets don’t feel very welcome,” he remarked, referring to certain government rhetoric.

He noted that foreign demand for Treasuries and other dollar-denominated assets is weakening due to fears of political interference and ballooning debt.

Summary: Fed Could Cut Rates—If Tariffs Don’t Change the Game

Waller remains open to easing monetary policy later this year, as long as inflation cools and the labor market stays strong. While Trump’s tariffs may temporarily push inflation higher, they are not yet a reason to rule out rate cuts. However, the outlook depends heavily on how U.S. trade policy evolves in the coming months.




#FederalReserve , #Fed , #USPolitics , #economy , #Inflation

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