Fed's Waller warns high tariffs could push inflation near 5% while economy slows 'to a crawl'

Key Points

  • Federal Reserve Governor Chris Waller warns of potential 5% inflation and economic slowdown if tariffs remain at 25%.
  • Waller suggests the Fed might cut interest rates to prevent a recession, viewing tariff-induced inflation as possibly temporary.
  • Two scenarios outlined: one with sustained high tariffs leading to higher inflation and unemployment, and another with reduced tariffs resulting in lower inflation and economic impact.

Summary

Federal Reserve Governor Chris Waller has expressed concerns about the potential economic impacts of maintaining a 25% tariff rate, suggesting that inflation could surge to nearly 5% and economic growth could significantly slow down. In his speech in St. Louis, Waller highlighted the possibility of the Fed needing to cut interest rates to stave off a recession, arguing that the inflation caused by tariffs might be temporary. He contrasted this with the Fed's misjudgment during the 2021-2022 period when inflation was initially thought to be transitory. Waller outlined two scenarios: one where high tariffs persist, leading to increased unemployment and inflation, and another where tariffs are reduced, resulting in lower inflation and a less severe economic impact. This nuanced approach reflects the ongoing debate within the Fed about balancing its dual mandate of employment and price stability amidst uncertain trade policies.

yahoo
April 14, 2025
Stocks
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