A top policymaker at the U.S. Federal Reserve has reiterated his support for cutting interest rates this year, despite concerns over elevated inflation and potential tariffs under the incoming Trump administration. Christopher Waller, a key member of the Fed's board of governors, expressed confidence that inflation will gradually approach the Fed's 2% target in the near future. He also addressed the issue of tariffs, stating that he believes increased import duties are unlikely to have a significant impact on inflation in the current year.
Waller's stance on further rate cuts contrasts with prevailing expectations on Wall Street, where there are apprehensions about persistent high prices. While inflation reached 2.4% in November, Waller pointed out that excluding housing costs, prices are showing signs of cooling. He emphasized his belief that inflation will continue to progress towards the 2% goal over the medium term, warranting additional rate reductions.
Despite uncertainties surrounding the impact of tariffs on the economy, Waller's remarks signal his optimism about inflation and the necessity for further rate adjustments. The Fed's key rate currently stands at approximately 4.3% following multiple reductions last year from a peak of 5.3%. Market expectations indicate a single rate cut in 2025, as per futures pricing tracked by CME Fedwatch.
While Waller did not specify the exact number of cuts he supports, he mentioned that Fed officials collectively projected two reductions in December. However, the final decision on the number of cuts will depend on the progress made in curbing inflation. Fed Chair Jerome Powell has acknowledged the challenges in predicting the impact of tariffs on Fed policy and inflation, emphasizing the need for a cautious approach.
As the Fed prepares to release minutes from its December meeting, analysts are keen to gain insights into policymakers' views on inflation and the potential repercussions of tariffs. The evolving economic landscape, coupled with uncertainties surrounding trade policies, continues to shape the Fed's decision-making process as it navigates through complex macroeconomic challenges.
