Christopher Waller, the governor of the Federal Reserve, said on Wednesday that he wanted to see more interest rate cuts this year and that he didn’t think that Trump’s plans for import taxes would cause inflation to rise.
Waller said this in a speech to the Organization for Economic Cooperation and Development in Paris: “I think more cuts will be right.”
At their meeting last month, Fed officials decided that they would only cut interest rates by two quarter percentage points this year. This was less than the four cuts they had originally planned.
Another surprise for the market was that officials raised their prediction for inflation this year from 2.1% to 2.5%. The Fed’s most recent prediction also said that it would take until 2027 for inflation to reach its goal of 2%.
A lot of experts said they thought the pessimistic predictions were partly based on what people thought Trump’s economic policies, like tariffs, would be like. Fed Chairman Jerome Powell said that not all Fed officials had taken Trump’s plans into account in their predictions.
Rates are not likely to go down again when the Fed meets at the end of January. A lot of analysts think that cuts will stop for a while. Derivatives traders only expect one rate cut in 2025.
Most experts think that tariffs will make prices go up for American consumers because they are taxes on imports.
Waller agreed, but he said that any price increases would not have “a significant or persistent effect on inflation.”
“They are unlikely to affect my view of appropriate monetary policy,” he said.
If things go the way Waller thinks they will, he “will support continuing to cut our policy rate in 2025.”
“The pace of those cuts will depend on how much progress we make on inflation, while keeping the labor market from weakening,” he stated.
Waller said that he thought inflation would ease in the next few months.
It’s not all just math. A lot of the higher inflation rates from the beginning of 2024 will start to fall off in January, he said.
“This should result in a significant step-down in the 12-month inflation numbers through March,” he said.
On top of that, inflation based on a shorter 6-month average has been going down.
Waller also said that some of the most difficult parts of inflation are measures that the government guesses rather than prices that can be seen.
“I find it notable that imputed prices, rather than observed prices,were driving inflation in 2024 and thus expectations of the policy rate path,” he added.
This is what Waller called these prices: “a less reliable guide to the balance of supply and demand across all goods and services in the economy.”
Also: Bernanke says Trump’s plans will probably have a “modest” effect on inflation.
Waller said that the Fed’s current policy is still “restrictive,” which means it is stopping demand, during the question-and-answer session.
“The job market is not booming along,” Waller said, as it would be if money were easy to get.
“I do think they are restrictive, but not enough to throw us into recession,” said he.
