Fed Governor Waller: Rate Cuts Needed if Tariffs Slow Economy

Federal Reserve Governor Christopher Waller indicated that significant tariffs, particularly those imposed by the Trump administration, could necessitate earlier interest rate cuts to mitigate a potential economic slowdown. In a speech, Waller expressed that if the tariffs lead to a severe recession, he would support lowering the policy rate even if inflation remains above the Fed's target of 2%. He noted that while inflation could initially rise due to tariffs, its effects are expected to be transitory, suggesting that the risk of recession might outweigh the inflationary concerns. Waller outlined two scenarios: one with prolonged high tariffs leading to a crawl in economic growth, and another where negotiations could limit tariffs to around 10%, potentially stabilizing the economic outlook. He emphasized the need for the Fed to remain flexible and responsive to evolving economic conditions. Overall, Waller's remarks highlight ongoing uncertainties regarding the interplay between tariffs, inflation, and monetary policy.