Fed's Waller: Uncertainty over trade, other policies, shouldn't paralyze rate moves

Federal Reserve Governor Christopher Waller delivered a speech at the University of New South Wales in Australia, addressing the impact of uncertainty on monetary policy decisions. Waller emphasized that uncertainty about trade or other administration policies should not stall the Fed from acting if it is otherwise appropriate. He believes that the Fed should continue to adjust monetary policy based on incoming data, even when facing great uncertainty about the economic landscape.

Waller's baseline view is that any imposition of tariffs will only modestly increase prices and in a nonpersistent manner. He favors looking through these effects when setting monetary policy to the best of their ability. Waller concedes that the effects of tariffs could be larger than he anticipates, but he also notes that other policies under discussion could have positive supply effects and put downward pressure on inflation.



Waller's perspective on uncertainty in trade and other policies differs from that of other Fed officials in that he believes the Fed should not wait for economic uncertainty to dissipate before acting on monetary policy. He cited two examples where the Fed acted in the face of great uncertainty: the Russian invasion of Ukraine in 2022 and the banking crisis in 2023. In both cases, the Fed implemented monetary policy actions despite the uncertainty, demonstrating that the Fed can and should act based on incoming data even when facing great uncertainty about the economic landscape.

This perspective has implications for monetary policy decisions in that it suggests the Fed should not be overly cautious in the face of uncertainty. Instead, the Fed should continue to adjust monetary policy based on incoming data, even if there is uncertainty about the economic outlook. This approach allows the Fed to respond more quickly to changes in the economy and helps to ensure that monetary policy remains effective in achieving its goals of maximum employment and stable prices.

In contrast, some other Fed officials may be more cautious in the face of uncertainty, preferring to wait for more clarity before adjusting monetary policy. This approach could lead to a delay in responding to changes in the economy, potentially resulting in a less effective monetary policy. By acting more quickly in the face of uncertainty, Waller's perspective helps to ensure that the Fed remains responsive to changes in the economy and maintains its ability to achieve its goals.



Waller's view that tariffs are unlikely to have a significant or persistent effect on inflation, if enacted, can help to manage inflation expectations. By communicating this perspective, Waller helps to reassure investors that the Fed is aware of potential inflationary pressures and is prepared to act if necessary. This approach allows the Fed to maintain its independence and credibility in the face of uncertainty.

In conclusion, Federal Reserve Governor Christopher Waller's speech at the University of New South Wales highlights the importance of acting based on incoming data, even when facing great uncertainty about the economic landscape. Waller's perspective on uncertainty in trade and other policies differs from that of other Fed officials, and his approach has implications for monetary policy decisions. By acting more quickly in the face of uncertainty, Waller's perspective helps to ensure that the Fed remains responsive to changes in the economy and maintains its ability to achieve its goals of maximum employment and stable prices.