Washington (AFP) – The effect of new tariffs under consideration by US President-elect Donald Trump is unlikely to be “significant or persistent,” a senior Federal Reserve official said Wednesday. Trump has floated several proposals, including a plan for sweeping tariffs on all goods entering the United States — drawing criticism from many economists concerned about possible negative ripple effects.
But in a lecture at the Organization for Economic Cooperation and Development (OECD) in Paris, Fed Governor Christopher Waller — who did not refer directly to Trump — suggested he thought some of the concerns about tariffs may be overblown. “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,” said Waller, who is a permanent voting member of the Fed’s interest rate-setting committee.
“I don’t think these draconian tariffs that everybody’s talking about are necessarily going to be implemented,” he added in a nod to Trump’s threats to impose across-the-board tariffs. Waller also addressed the Fed’s likely rate cut path, following a flurry of votes that lowered the US central bank’s benchmark lending rate by 100 basis points in a matter of months.
At their most recent meeting in December, Fed policymakers penciled in just two rate cuts for 2025, suggesting they expect a slower pace of cuts ahead. US inflation has fallen sharply since it hit a four-decade high in 2022, but recently ticked higher, creeping away from the Fed’s long-term target of two percent. At the same time, economic growth has remained resilient, and the labor market has stayed relatively robust, raising concerns the Fed may have to keep rates higher for longer to tame it.
Higher interest rates indirectly affect borrowing costs for consumers and businesses, affecting the cost of everything from mortgages to car loans. Speaking to the OECD on Wednesday, Waller said he believed that “inflation will continue to make progress toward our two percent goal over the medium term and that further reductions will be appropriate.”
“If the outlook for the economy evolves as expected,” Waller said he would support continuing to cut rates this year. “As always, the extent of further easing will depend on what the data tell us about progress toward two percent inflation, but my bottom-line message is that I believe more cuts will be appropriate,” he said.
Futures traders currently see a probability of close to 95 percent that the Fed will remain on pause at the next interest rate meeting later this month, according to data from CME Group. They also assign a probability of around 80 percent that the US central bank will make no more than two quarter percentage-point cuts this year.
© 2024 AFP
