Inflation pressure from tariffs will be transitory, Fed governor says
The Federal Reserve will likely be able to lower interest rates this year, and recent data supports this outlook, Fed Governor Christopher Waller said.
In a speech Monday morning in South Korea, Waller argued that inflation from the the Trump administration's higher taxes on imported goods wouldn't be persistent. He said that consumers are not acting as if they are worried about higher inflation despite recent polls saying they expect short-term inflation above 6%.
"I support looking through any tariff effects on near term-inflation when setting the policy rate," Waller said.
Assuming that the effective tariff rate settles close to 10% and that underlying inflation continues to make progress to the Fed's 2% goal, and that the labor market remains solid, "I would be supporting 'good news' rate cuts later this year," Waller said.
A "good news" rate cut means the Fed can lower rates because worries of high inflation have eased. A "bad news" rate cut would come from a clear economic downturn.
Waller said a 10% average tariff rate would mean only "modest" job losses for the economy.
In his remarks, Waller said that recent hard data pointing to a solid labor market and gradually slowing inflation gave the Fed "additional time" before making a decision to cut rates.
The Fed will meet to set interest rates on June 17-18. Traders in derivative markets think the Fed will wait until September to approve a rate cut.
Waller is the most persistent voice on the Fed calling for easing. Most Fed officials who have spoken over the past few weeks have emphasized a "wait and see" stance because of how uncertain the outlook is for inflation and the labor market because of the Trump administration's trade policies.
Economists said they think Fed Chair Jerome Powell will not be quick to back rate cuts and will want to wait until he is sure the risk of higher inflation has eased.
At a White House meeting last week, President Donald Trump again urged Powell to cut rates.
-Greg Robb
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