Federal Reserve Governor Sees 10% Tariff Cut Leading to 2025 Rate Reduction

Federal Reserve Governor Christopher Waller recently shared his views on the potential impact of tariffs on the U.S. economy and the Federal Reserve's monetary policy. He stated that if tariffs decrease, the Federal Reserve is likely to cut interest rates in the second half of 2025. This perspective aligns with the Fed's approach of looking through temporary price impacts, as tariffs would result in a one-time increase in prices.

Waller emphasized that the current economic data shows the economy performing well, with minimal signs of tariff impacts so far. He noted that if tariffs were to settle down, the Fed could be in a position to cut interest rates later in the year. This optimism is based on the assumption that tariffs would not drive persistent inflation.

Waller also expressed hope that the current administration's path is a good one, indicating a positive outlook on the economic policies being implemented. He clarified that the Fed would not be buying bonds in primary auctions, underscoring the central bank's commitment to maintaining a balanced approach to monetary policy. Additionally, he mentioned that firms are pausing but not canceling their plans, suggesting a cautious but not pessimistic stance among businesses.

The governor's comments did not seem to have a noticeable impact on the U.S. Dollar's performance, as the U.S. Dollar Index remained virtually unchanged at the time of the interview. This stability indicates that the market may already be pricing in the potential effects of tariffs and the Fed's response to them.

Waller's statements reflect a nuanced view of the economic landscape. He acknowledged that if tariffs were closer to 10%, the economy would be in good shape for the second half of the year. This suggests that the Fed is closely monitoring the tariff situation and is prepared to adjust its policies accordingly. His optimism about the economic outlook has increased relative to the previous month, indicating a growing confidence in the economy's resilience.

Overall, Waller's remarks provide a clear picture of the Fed's stance on tariffs and their potential impact on monetary policy. The central bank is prepared to act if necessary, but for now, it remains optimistic about the economy's ability to weather the challenges posed by tariffs.