'US Fed No.2' Waller: "Low Possibility of Tariff-Driven Inflation... Additional Rate Cuts Appropriate"

"Progress Toward 2% Inflation... Support for Interest Rate Cuts"

Christopher Waller, the second-in-command at the U.S. Federal Reserve (Fed), projected that the tariff increase policy of President-elect Donald Trump, who will take office on the 20th, will have a limited impact on inflation. Until now, it has been rare for Fed officials to express the view that tariffs would not significantly affect the economy. Waller expects inflation to continue declining toward the 2% target and stated that additional interest rate cuts this year would be appropriate.

On the 8th (local time), at an event held by the Organisation for Economic Co-operation and Development (OECD) in Paris, Waller said regarding Trump’s tariff increase policy, "I do not expect tariffs to have a significant or lasting impact on inflation," and added that he would not change his view that further interest rate cuts are appropriate.

On the same day, U.S. CNN reported that President-elect Trump is expected to invoke the International Emergency Economic Powers Act (IEEPA) as anticipated to implement his universal tariff pledge.

Waller, who was appointed by Trump during his first term and is mentioned as a candidate for the recently vacant Fed Vice Chair position, said, "I believe inflation will continue to progress toward the 2% target in the medium term," and "If my forecast holds, I will support continued policy rate cuts even in 2025." As the basis for his expectation that inflation will fall to 2%, he cited the recent six-month decline in core inflation growth rates and lower-than-expected November price indicators.

Waller diagnosed that the U.S. economy is on a solid footing and the labor market is close to maximum employment, the Fed’s target, but current interest rates remain at a restrictive level. He evaluated, "The U.S. labor market does not appear overheated or like an economy without constraints," and "Policy rates are having an effect." He repeatedly emphasized that since current rates are still suppressing economic activity, additional rate cuts are appropriate.

However, he added a caveat that the pace of monetary easing would depend on data. Waller said, "As always, the extent of further easing depends on data related to progress toward 2% inflation," and "The pace of cuts will depend on how inflation progresses while preventing the labor market from weakening."

Waller’s remarks on this day contrast with the Fed’s monetary policy stance in December last year, which was 'hawkish (favoring monetary tightening) easing.' In December, the Fed cut the benchmark interest rate by 0.25 percentage points to an annual range of 4.25?4.5%, while reducing the projected rate cut for 2025 from 1 percentage point to 0.5 percentage points. Fed officials, including Chair Jerome Powell, have indicated cautious monetary easing going forward, leading to lowered market expectations for rate cuts.

The market is focusing on the Federal Open Market Committee (FOMC) minutes to be released at 2 p.m. Eastern Time (4 a.m. Korean time on the 9th). Through the FOMC minutes, it is expected that the Fed members’ current economic assessments and views on the future monetary policy path will be confirmed.

This content was produced with the assistance of AI translation services.