Federal Reserve governor Chris Waller said Wednesday that he still supports cutting interest rates this year, believing inflation will continue to drift lower despite promises of sweeping tariffs from the new Trump administration.
“I believe that inflation will continue to make progress toward our 2% goal over the medium term and that further reductions will be appropriate,” Waller said during a speech in Paris.
While Waller underscored that tariff proposals raise the possibility of a “new source of upward pressure on inflation,” he noted projections of their economic impact vary widely.
“If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy,” Waller said.
A clash between Donald Trump and the Fed could develop in 2025 if the Fed pulls back any expected interest rate cuts due to elevated inflation. Some economists expect Trump’s polices to make any cuts less likely.
Trump heaped more pressure on the Fed Tuesday during a press conference at his Mar-a-Lago club in Florida.
“Inflation is still raging, and interest rates are far too high,” Trump said, arguing that “we are inheriting a difficult situation from the outgoing administration.”
Trump has previously threatened tariffs of 25% on Mexico and Canada and 10% on China, and Mexico has pledged to retaliate.
Rapidly changing signals on that topic caused a lot of market whiplash Monday following a Washington Post story outlining discussions among top Trump aides centered around a more limited set of tariffs that would be universal but only apply to what are deemed critical imports.
Just a few hours later, Trump himself weighed in to flatly deny the story, writing on social media that the story “incorrectly states that my tariff policy will be pared back. That is wrong.”
Waller on Wednesday emphasized that he needs to see what policies are enacted before seriously considering the effects — a point reinforced in recent months by Fed Chair Jerome Powell.
Waller wouldn’t specify how many rate cuts the Fed could make this year, but said he believes “more cuts will be appropriate.”
Last month, Fed policymakers predicted a total of two rate cuts in 2025, down from a previous estimate of four due in part to expectations of elevated inflation.
“The pace of those cuts will depend on how much progress we make on inflation while keeping the labor market from weakening,” Waller said.
Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards
