The U.S. Federal Reserve remains deeply divided over whether the inflationary impact of President Donald Trump’s latest tariffs will be temporary or long-lasting, a crucial distinction as officials debate whether to hold interest rates steady or begin cutting them later this year.
Some officials, including Fed Governor Christopher Waller, argue that the inflation from tariffs is likely short-lived, opening the door for potential rate cuts if inflation continues to ease. Others, including Minneapolis Fed President Neel Kashkari and Dallas Fed President Lori Logan, caution that inflation risks could persist, supporting a more cautious stance on monetary policy.
Waller: Tariff-Driven Inflation Will Be “Temporary”
Speaking Sunday in Seoul, Waller reiterated his position that tariff-induced inflation will not be persistent and should not deter potential rate cuts. He said inflation expectations remain anchored and emphasized the need to assess tariffs’ near-term inflation impacts in policy discussions.
“Given my belief that any tariff-induced inflation will not be persistent… I support considering the impact of tariffs on near-term inflation in setting the policy rate,” Waller said.
He sees room for a “good news” rate cut later this year if inflation continues moving toward the Fed’s 2% target, employment remains strong, and effective tariff rates stay near 15%.
Goolsbee: Rate Cuts Still Likely Despite Trade Uncertainty
Chicago Fed President Austan Goolsbee echoed Waller’s tone on Monday, describing tariff uncertainty as “dirt in the air” but maintaining that the U.S. is on a general path to lower rates.
“If we can get through this tough period, the dual mandate still looks pretty good to me,” Goolsbee said.
Kashkari, Logan Favor Holding Rates Steady
However, other officials remain skeptical. Minneapolis Fed President Neel Kashkari warned last week that trade disputes could drag on for months or years, with tariffs escalating in a tit-for-tat cycle. As such, he prefers to hold rates steady until more clarity emerges.
“Given how much I value preserving long-term inflation expectations, I find those arguments more compelling,” Kashkari said.
Dallas Fed President Lori Logan also signaled caution, stating interest rates are “in a good place” and that the Fed needs more time to evaluate evolving risks. She warned that cutting rates prematurely could risk an inflationary spiral.
“In the short term, central banks can always cut rates to stimulate employment,” Logan said. “But over time, cutting rates too much can set off an inflationary spiral.”
Fed Minutes Reveal Broader Concerns
Minutes from the Fed’s May meeting revealed that some members are concerned tariffs on intermediate goods—like steel and aluminum—could sustain inflation by disrupting supply chains, drawing parallels to pandemic-era pressures.
These concerns intensified after Trump announced Friday that tariffs on steel and aluminum would double to 50%.
Yet, officials also noted that several offsetting factors could temper inflation, including:
Possible de-escalation of tariffs through trade negotiations
Weak consumer appetite for price hikes
A potential slowdown in economic growth
Businesses focusing on market share rather than price increases
Waller: Watch the Second Half of 2025
Waller projected that the inflationary effects of tariffs will be most visible in the second half of 2025, but he stressed that this forecast hinges on how trade policy evolves.
He dismissed comparisons to the pandemic, noting that unlike then, there is no major labor shortage, no massive fiscal stimulus, and no signs of severe supply chain breakdowns. As of April, he said, there was little evidence of tariffs affecting inflation or the broader economy.
“As of today, I see downside risks to economic activity and employment and upside risks to inflation in the second half of 2025,” Waller said.
