Fed’s Waller: Trade Uncertainty Shouldn’t Stall Rate Decisions, Data Should Lead Policy

Fed Governor Christopher Waller argued that economic uncertainties, like tariffs and trade policies, shouldn’t prevent the central bank from making necessary rate decisions. He emphasized that data should guide policy, not speculation. While the Fed is holding rates steady, Waller suggested rate cuts could be appropriate later in 2025 if inflation shows improvement.

Fed’s Waller: Trade Uncertainty Shouldn’t Stall Rate Decisions, Data Should Lead Policy

Federal Reserve Governor Christopher Waller addressed concerns about uncertainty in economic policies, including trade policies and the effects of tariffs, during a recent speech at the University of New South Wales in Australia. Waller emphasized that although there are uncertainties surrounding the impact of trade tariffs and other political policies, such factors should not prevent the Federal Reserve from making necessary monetary policy decisions.

He pointed out that just like the Fed had adjusted interest rates despite the uncertainties caused by Russia’s invasion of Ukraine in 2022 and the collapse of Silicon Valley Bank in 2023, trade policy uncertainty should not paralyze policy action.

Waller’s baseline view is that the imposition of tariffs, such as those introduced during the Trump administration, would have only a modest and temporary impact on prices. He stated that while it’s possible that tariffs could have a larger effect than anticipated, it is also important to recognize that other policy measures under discussion could bring positive effects on supply and exert downward pressure on inflation. As such, Fed’s Waller suggested that the Fed should not focus on speculative economic uncertainties but should instead base its policy decisions on the actual data available at the time.

Fed’s Waller remarks reflect the broader stance within the Federal Reserve, where many policymakers are currently holding interest rates steady while waiting for inflation to trend closer to the central bank’s 2% target. At present, inflation remains about half a percentage point or more above the target, and recent inflation data have shown little improvement. Despite this, Waller emphasized that the Federal Reserve must continue to take data-driven actions and not let the uncertainty in trade policies, tariffs, or other external factors hinder the necessary steps to manage inflation.

Waller also noted that, for now, it is appropriate for the Fed to maintain its current policy stance of keeping interest rates on hold until there is clearer evidence that inflation is moving towards the desired 2% target. However, he pointed out that this situation might change if inflationary pressures show signs of declining in the near future.

Waller cited a recent rise in the Consumer Price Index (CPI) as disappointing but suggested that the uptick could be related to issues with seasonal data adjustments rather than actual price pressures. He underscored that the data on inflation do not yet support a reduction in interest rates but acknowledged that if 2025 unfolds similarly to 2024, rate cuts could become appropriate later in the year.

The Federal Reserve’s current benchmark interest rate is set within a range of 4.25% to 4.5%, and market expectations suggest that the Fed’s Waller will likely keep this range steady at its upcoming March meeting. Waller’s comments reflect the ongoing balancing act for the Fed as it navigates economic uncertainties while trying to bring inflation under control. Despite the challenges posed by trade policies and other unpredictable factors, he stressed that the Fed should avoid being immobilized by uncertainty and instead focus on the concrete data to guide its actions.

In summary, Fed’s Waller remarks highlight his belief that while uncertainty over trade policies, tariffs, and other economic factors may have some impact, it should not lead to inaction by the Federal Reserve. The data, he argued, should drive policy decisions, and waiting for all uncertainties to resolve could result in policy paralysis. The current priority is to ensure that inflation moves towards the Fed’s 2% target, and while interest rates will remain steady for now, the Fed’s Waller could consider rate cuts later in the year if inflation data supports such action.