Fed’s Waller, leaning against March cut, sees easings later in year

In discounting an easing at March 18-19 Federal Open Market Committee, Waller indicated he simply will not have the inflation data in hand to know whether cutting what’s now a 4.25% to 4.5% federal funds rate range is justified, especially amid the heavy uncertainty created by President Donald Trump’s trade agenda.

“I want to see what happens with the February inflation data. Want to see a little bit more with what happens with tariff policies,” Waller said at a Wall Street Journal event.

When it comes to price pressures, “if you think it’s moving backwards target, you can start lowering rates, I wouldn’t say, at the next meeting,” but at some point after that, the Fed official said.

Longer-term, Waller said the monetary policy outlook offered by officials at their December meeting still looks plausible. Noting projections of two cuts this year and next, he said “I don’t think there’s anything wrong with that kind of number,” even if the actual outcome is slightly different.

As the year moves forward, “I’m still kind of believing that the good news rate cuts are in place,” which are easings driven by easing inflation pressures, as opposed to cuts aimed at countering economic weakness. But Waller did acknowledge recent data that points to rising weakness, and he said he’s waiting to see if it translates into broader-based government data. Financial markets currently see negligible odds of a March cut, remain divided over the May meeting, and are pricing in a rate cut at the June FOMC gathering. Waller’s comments come as anxiety over the economic outlook is mounting, as the Trump Administration presses ahead erratically with major tariffs on America’s largest trading partners. Economists widely believe Trump’s trade levies, which function as tax increases on Americans to the extent foreign producers do not eat the higher costs, will drive inflation pressures higher over time, and could depress growth.

Some recent data show the public is bracing for higher price pressures as their optimism over the economic outlook dims. Meanwhile, the upside risk to price pressures comes as a once steady retreat in inflation toward the Fed’s 2% target appears to have stalled.

On Tuesday, New York Fed President John Williams said

“based on what we know today, given all the uncertainties around that, I do factor in some effects from tariffs now on inflation, on prices, because I think we will see some of those effects later this year.” Speaking Thursday, Philadelphia Fed President Patrick Harker

noted while inflation has been retreating, “I’m worried that right now that is at risk.”

TARIFF TROUBLES

Waller’s outlook is notable for having recently signaled a somewhat sanguine outlook on tariffs, saying on Feb. 17

that “my baseline view is that any imposition of tariffs will only modestly increase prices and in a non-persistent manner,” which in turn argues for no monetary policy response.

By and large, most Fed officials have commented gingerly about the impact of tariffs on monetary policy amid uncertainty over the exact details of the tariff agenda, including whether the taxes will be maintained.

Waller’s comments on Thursday flagged the uncertainty of understanding how tariffs will impact the economy and noted that changes in the state of the economy as well as Trump’s shift to a harder line make it difficult to compare the two periods for policy clues.

Waller suggested however that limiting the pass-through of whatever tariffs endure might be harder this time. “It’s very hard to eat a 25% tariff out of the profit margins,” he said.

The central banker also said that when it comes to gauging inflation expectations he’s more focused on market measures over survey data, and on that front, the message of market pricing suggests that traders and investors see no real longer-run inflation impact from current Trump policies’ goals.