Speech by Governor Waller on the economic outlook, full text here:
The Effects of Tariffs on the Three I’s: Inflation, Inflation Persistence, and Inflation Expectations‘Good news’ rate cuts remain possible later this yearRate cut view rests on easing inflation, tariffs on lower end of rangeStrong economy through April gives Fed time to see how trade shakes outTariffs likely to create one-time price increase Fed can look throughConsiderable uncertainty still surrounds trade policy outlookSees downside risk to economy, job market, upside risk to inflationTariffs to be main driver of inflation this yearTariffs will drive up unemployment which will likely lingerTariff inflation impact likely greatest in second half of 202501 Jun 2025 08:00:00 PM – Fed’s Waller says he is most attentive to market and forecaster views on inflationDoesn’t see real world issues with expected path of inflationSome of modest sized tariff regime will not be passed along
Waller continues to downplay the long-term impact of tariffs on inflation, maintaining that price pressures from tariffs will likely be temporary and that inflation expectations remain well anchored.
On some surveys suggesting consumers expect higher inflation, Waller argues that the current labour market doesn’t give workers enough bargaining power to push for and win higher wages:
workers don’t have much leverage to ask for raisesworkers are probably more worried about keeping their jobs than seeking pay hikes right now
Given this, Waller still supports the idea of cutting interest rates later this year, even if the job market holds steady, choosing to “look through” any inflation caused by tariffs.
This article was written by Eamonn Sheridan at www.forexlive.com.