Federal Reserve Governor Christopher Waller indicated in a speech in Seoul, South Korea on Monday that while the Trump administration’s policy of imposing tariffs may temporarily push up prices, he still supports the Federal Reserve considering a rate cut in the second half of 2025 if inflationary pressure does not continuously worsen and the labor market remains stable. This statement aligns with the Federal Reserve’s recent cautious approach to monetary policy while maintaining flexibility for future adjustments.
Waller analyzed that the impact of the Trump administration’s tariff adjustments on prices might be phased. He emphasized that if the final tariff rate falls below the lower limit of the market expectation range (around 10%), the resulting inflationary pressure “is likely to be a one-off pulse rather than a sustained upward trend.”
The current target range for the US federal funds rate remains at 4.25% to 4.5%. Waller noted that the resilience of the labor market since April (with the unemployment rate remaining below 4% for three consecutive months) and the marginal improvement in core inflation have provided the Federal Reserve with a “valuable time window” to observe the impact of trade policies.
Regarding inflation expectation management, Waller said that they rely more on financial market transaction data and predictions from professional institutions, all of which expect price pressures to remain controllable. Waller pointed out that actual economic data also confirm that there are no significant signs of deterioration in current consumer inflation expectations.
Waller’s speech reflects the policy dynamics within the Federal Reserve. On one hand, his statement that “interest rate cuts at the end of the year can be supported if conditions are met” echoes the views of officials such as Atlanta Fed President Bostic. On the other hand, his emphasis on the lagging effect of tariffs and the risk of unemployment aligns with the cautious stance of San Francisco Fed President Daly and others.
This interplay surrounding tariffs, inflation, and interest rates is becoming a key variable influencing global asset pricing in the second half of the year. Waller’s speech once again highlights that under the shadow of trade policy uncertainty, the Federal Reserve’s monetary decision-making is delicately balanced between “preventing inflation” and “stabilizing growth.”
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