A Tale of Two Outlooks
Speech today by by FOMC Governor Waller
In his April 14, 2025 speech, Governor Christopher Waller addressed the issue of tariffs, specifically in the context of potential inflationary effects:
• Tariffs and Inflation: Waller acknowledged that new tariffs could push up prices in the near term. However, he emphasized that if the inflationary effects of tariffs are transitory, the Federal Open Market Committee (FOMC) would likely look through them, meaning they would not react with policy changes unless the effects are persistent.
• Policy Implication: He stated the FOMC would not respond to temporary inflation spikes caused by one-off factors like tariffs. Instead, the Committee would focus on whether such effects become embedded in broader inflation trends.
In short: the FOMC will look through the short-term impact of tariffs on inflation, unless there’s evidence those effects are lasting and broad-based.
This should be taken as a further GTFO signal for foreign holders of USDs — FOMC looks primed to repeat the transitory debacle and will preference defence of employment over inflation at the cost of the dollar.
On balance Waller’s message was cautious: the Fed will hold rates steady for now, watch incoming data closely, and is prepared to keep policy tight longer if necessary to ensure inflation returns to target.
Economic Activity: Waller noted the U.S. economy remains strong, with solid consumer spending and a resilient labor market. He expects moderate growth going forward.
• Inflation: While inflation has declined significantly from its peak, progress has stalled recently. Waller expressed concern about the lack of further improvement, particularly in services inflation.
• Monetary Policy Stance: Given stalled inflation progress and continued economic strength, Waller does not see a compelling case for cutting interest rates right now. He supports maintaining the current policy stance until there’s clearer evidence inflation is sustainably moving toward 2%.
• Outlook for Rate Cuts: Waller emphasized being “data dependent,” but if inflation does not resume its decline, the timing and extent of rate cuts may be delayed.