A top US Federal Reserve policymaker said on Wednesday that he still supports cutting interest rates this year, despite rising inflation and the possibility of broad tariffs under the incoming Trump administration.
Christopher Waller, an influential member of the Fed’s Board of Governors, said he expects inflation to approach the Fed’s 2% target in the coming months. In some of the Fed official’s first comments on tariffs specifically, he said higher import duties would likely not lead to higher inflation this year.
“My basic message is that I think further cuts would be appropriate,” Waller said at the OECD conference in Paris.
“If, as I expect, tariffs do not have a significant or sustained impact on inflation, they are unlikely to impact my view,” Waller added.
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His comments are noteworthy because the impact of tariffs is a major wild card for the economy this year. Waller also noted that he is more optimistic about inflation than many Wall Street investors, who increasingly expect the Fed to keep interest rates steady this year as prices continue to rise.
“I believe inflation will continue to make progress towards our 2% target over the medium term and that further (interest rate) cuts would be appropriate,” Waller said. While inflation has held steady in recent months — rising to 2.4% in November, according to the Fed’s preferred measure — Waller said that outside of the housing sector, which is harder to measure, prices are cooling.
Waller’s comments run counter to growing expectations on Wall Street that the Fed may not cut its key interest rate much, if at all, this year. It currently stands at about 4.3% after several cuts in the past year from a two-decade high of 5.3%. Financial markets expect just one rate cut in 2025, according to futures pricing tracked by CME Fedwatch.
Waller did not specifically say how many cuts he supports. Instead, he said, Fed officials expect two cuts this year, as a group, in December. But he also noted that policymakers support a wide range of outcomes, from no cuts to as many as five. He added that the number of cuts will depend on progress towards reducing inflation.
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