Fed’s Waller Hints at Potential Rate Cuts Despite Tariff-Driven Inflation Risks

Federal Reserve Governor Christopher Waller said interest rate cuts remain on the table for 2025, even as President Donald Trump’s new tariffs are expected to temporarily lift inflation. Speaking in Seoul, Waller emphasized that he would “look through” the near-term inflationary impact of tariffs when setting monetary policy.

If inflation keeps trending toward the Fed’s 2% target and the job market remains strong, Waller supports what he called “good news” rate cuts later this year. He noted that April’s inflation data and a resilient labor market provide space to monitor how the economy evolves amid trade uncertainty.

Waller’s comments diverge from more cautious Fed voices, as he acknowledged short-term risks from higher import duties. He sees potential inflation spikes in the second half of 2025 but characterized them as likely one-time effects. He added that if tariffs stay around 10%, the full price impact may not be passed on to consumers.

The Fed official highlighted that current inflation dynamics differ from those in 2021, when transitory assumptions proved inaccurate. He emphasized that today's inflation expectations from markets and professional forecasters remain stable.

Waller also addressed rising bond yields, attributing them partly to growing concerns about U.S. debt and foreign investor sentiment amid protectionist trade policies. He warned that a "risk-off" mood among foreign buyers of U.S. assets could be emerging due to anti-investment signals from Washington.

Overall, Waller’s remarks suggest that the Fed is prepared to adjust rates if economic conditions allow, despite political and inflationary headwinds tied to Trump’s evolving trade agenda.