Federal Reserve Governor Christopher J. Waller is backing more interest rate cuts even if higher tariffs are imposed on imports, a proposal pushed forward by president-elect Donald Trump.
“Tariff proposals raise the possibility that a new source of upward pressure on inflation could emerge in the coming year,” Waller said during a Jan. 8 speech in France. “If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy.’”
Waller added that “the extent of further easing will depend on what the data tell us about progress toward 2 percent inflation, but my bottom-line message is that I believe more cuts will be appropriate.”
The 12-month inflation in November was at 2.7 percent. The last time inflation reading was below the 2 percent level was in February 2021.
Waller said he expects inflation to move toward the Fed’s 2 percent target in the medium term. The pace of rate cuts “will depend on how much progress we make on inflation while keeping the labor market from weakening.”
President-elect Trump has suggested imposing a wide range of tariffs on several nations. He has signaled a 60 percent tariff on Chinese imports and to end the country’s most-favored nation trading status.
The incoming president said he planned to impose additional 10 percent tariffs, on top of other tariffs, on imports from China as long as Beijing does not take concrete action to stop the flow of drugs, especially fentanyl, into the United States.
Trump also threatened to impose 25 percent tariffs on all goods coming from Mexico and Canada, citing the failure of America’s northern and southern neighbors to prevent massive illegal immigration via their borders into America.
The impact of these tariffs could trigger inflation, making decisions regarding interest rate cuts complicated.
Lisa D. Cook, a member of the Fed’s board of governors, said during a recent speech that the labor market has been “somewhat more resilient” since September while inflation has remained “stickier” than expected. “I think we can afford to proceed more cautiously with further cuts.”
