Tariff-induced inflation not persistent; rate cuts expected later this year: US Fed governor

Korea Herald

2 days ago

US Federal Reserve Gov. Christopher Waller said Monday that he sees room for interest rate cuts later this year amid expectations that sweeping US tariffs are likely to raise unemployment and temporarily push up inflation.
Waller, a member of the Board of Governors of the US Federal Reserve System, made the remarks in his keynote speech at the 2025 Bank of Korea International Conference in Seoul on structural shifts and monetary policy.
"Given my belief that any tariff-induced inflation will not be persistent and that inflation expectations are anchored, I support looking through any tariff effects on near-term inflation when setting the policy rate," Waller said.
"Assuming that the effective tariff rate settles close to my lower tariff scenario, that underlying inflation continues to make progress to our 2 percent goal, and that the labor market remains solid, I would be supporting 'good news' rate cuts later this year," he added.
His "smaller-tariff" scenario assumed a 10 percent average tariff on good imports, while sector-specific duties would be negotiated lower over time.
The "large-tariff" scenario assumed an average trade-weighted tariff on goods imports of 25 percent, and that would remain in place for some time.
"In both cases, I assumed that the tariff increases would lead to a one-time boost to prices that would temporarily raise inflation," Waller said.
Following the two-day Federal Open Market Committee meeting last month, the Fed held its benchmark interest rate steady for the third consecutive time, pointing to heightened economic uncertainty and increased risks of higher inflation amid Trump's aggressive tariff policy.
The official pointed to "downside risks to economic activity and employment and upside risks to inflation" in the second half of this year.
"I do expect tariffs will result in an increase in the unemployment rate that will, all else equal, probably linger. Higher tariffs will reduce spending, and businesses will respond, in part, by reducing production and payrolls," Waller said.