The governor does not expect President Donald Trump’s tariffs to significantly affect inflation.
The U.S. Federal Reserve’s decision to halt bringing down its benchmark interest rate is the right choice at the moment given the difficulty in tackling inflation, according to Christopher J. Waller, member of the board of governors at the central bank.
“For now, I believe a pause in rate cuts is appropriate,” Waller said during a Feb. 17 speech in Australia, citing various economic data to justify the stance. “The labor market is balanced and remarkably resilient.” Meanwhile, “inflation is still meaningfully above our target” of 2 percent. The 12-month inflation rate has consistently remained above the 2 percent level since March 2021.
Progress on inflation has been “excruciatingly slow over the last year,” the Fed governor said. “This tells me that we should currently have a restrictive setting of policy, as we do—to continue to move inflation down to our goal.” However, as inflation moves closer to the 2 percent target, monetary policy “should be getting closer to neutral.”
Waller said the data do not support reducing the policy rate at the present moment. “If 2025 plays out like 2024, rate cuts would be appropriate at some point this year.”
Last year, the Fed cut the federal funds interest rates three times, to reduce it by 1 percentage point, bringing the rate down to a range of 4.25–4.5 percent. In December, the Fed said it expects to see fewer rate cuts this year, citing inflation concerns.
During a Feb. 10 appearance before the Senate Banking Committee, Fed Chair Jerome Powell suggested a measured approach to reducing rates.
“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” said Powell. “We know that reducing policy restraint too fast or too much could hinder progress on inflation.”
“At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”
