Top Fed official backs new rate cuts even if Trump tariffs materialize

By James On Jan 8, 2025

WASHINGTON — A top policymaker at the U.S. Federal Reserve said Wednesday that he is still in favor of cutting interest rates this year despite it increased inflation and the prospect of widespread rates under the incoming Trump administration.

Christopher Waller, an influential member of the Fed’s Board of Governors, said he expects inflation to move closer to the Fed’s 2% target in coming months. And in some of the first comments from a Fed official specifically on tariffs, he said higher tariffs are unlikely to drive up inflation this year.

“My message is that I believe more austerity is appropriate,” Waller said in Paris at the Organization for Economic Co-operation and Development.

“If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to influence my view,” Waller added.

His comments are notable because the impact of tariffs is a major wildcard for the economy this year. Waller also suggested he is more optimistic about inflation than many Wall Street investors, who increasingly expect the Fed to keep rates steady this year as high prices persist.

“I believe that inflation will continue to make progress towards our 2% target over the medium term and that further (interest rate) cuts will be appropriate,” Waller said. While inflation has been persistent in recent months — rising to 2.4% in November by the Fed’s preferred measure — Waller argued that outside of the housing market, which is difficult to gauge, prices are cooling.

Waller’s comments run counter to growing expectations on Wall Street that the Fed will not cut its policy rate much, if at all, this year. It currently stands at around 4.3%, after several cuts last year from a two-decade high of 5.3%. Financial markets expect just one interest rate cut in 2025, according to futures prices CME Fedwatch.

Waller did not say how many cuts he specifically supports. Instead, he said Fed officials as a group had forecast two cuts this year in December. But he also noted that policymakers supported a wide range of outcomes, from no cuts to as many as five. The number of cuts will depend on progress in reducing inflation, he added.