Federal Reserve's Waller: Tariff impacts may be short-term disturbances, still supports year-end rate cuts if inflation is under control
Federal Reserve Governor Waller stated in South Korea that if inflationary pressures do not continue to worsen and the labor market remains robust, he supports considering interest rate cuts in the second half of 2025. He pointed out that the tariff policy of the Trump administration may temporarily push up prices, but if tariffs ultimately fall within the expected lower limit, inflationary pressures could be a one-time pulse rather than a sustained upward trend. Waller's remarks reflect the internal policy game within the Federal Reserve regarding tariffs, inflation, and interest rates, emphasizing the delicate balance between "anti-inflation" and "stabilizing growth" in the face of trade policy uncertainty
According to the Zhitong Finance APP, Federal Reserve Governor Christopher Waller stated in a speech in Seoul, South Korea on Monday that although the tariff policy of the Trump administration may temporarily raise price levels, he still supports the Federal Reserve considering interest rate cuts in the second half of 2025 if inflationary pressures do not show sustained deterioration and the labor market remains robust. This statement continues the Federal Reserve's recent cautious observation of monetary policy while leaving flexibility for future policy adjustments.
Waller analyzed that the impact of the Trump administration's tariff adjustments on prices may exhibit phased characteristics. He emphasized that if the final tariff rate falls within the lower limit of market expectations (around 10%), the resulting inflationary pressure is "most likely a one-time pulse rather than a sustained upward trend."
The current target range for the U.S. federal funds rate remains at 4.25%-4.5%. Waller believes that the resilience of the labor market since April (with the unemployment rate remaining below 4% for three consecutive months) and the marginal improvement in core inflation have provided the Federal Reserve with a "valuable time window" to observe the impact of trade policies.
In terms of managing inflation expectations, Waller stated that he relies more on financial market trading data and professional institution forecasts, as they all expect price pressures to remain controllable. Waller pointed out that actual economic data also confirms that current consumer inflation expectations have not shown significant signs of deterioration.
Waller's speech reflects the policy game within the Federal Reserve. On one hand, his statement that "if conditions are met, it could support a rate cut by the end of the year" resonates with the inclinations of officials like Atlanta Fed President Raphael Bostic; on the other hand, the emphasis on the lagging effects of tariffs and the risks of unemployment aligns with the cautious stance of officials like San Francisco Fed President Mary Daly.
This game surrounding tariffs, inflation, and interest rates is becoming a key variable influencing global asset pricing in the second half of the year. Waller's speech once again highlights that under the shadow of trade policy uncertainty, the balance of the Federal Reserve's monetary decision-making is delicately swaying between "preventing inflation" and "stabilizing growth."
