There's still a way to get interest rate cuts this year, Fed governor says

A fleeting inflation bump might pave the way for the Federal Reserve to cut interest rates, according to a top Fed official.

“Assuming that the effective tariff rate settles close to my lower tariff scenario, that underlying inflation continues to make progress to our 2 percent goal, and that the labor market remains solid, I would be supporting ‘good news’ rate cuts later this year,” Federal Reserve Governor Christopher Waller said at a Bank of Korea conference in South Korea on Monday.

Waller said he believed overall tariff rates were settling at 15%, describing it as between his high and low tariff scenarios he outlined at another speech earlier this year. Waller expects tariffs to push prices up this year, but any effect on the economy will be short-lived due to the absence of federal stimulus.

While the labor market remains healthy, unemployment will probably increase from its current level of 4.2%, Waller said.

The Federal Reserve is expected to cut interest rates twice this year. The central bank has held rates at 4.25% to 4.5% after shrinking them by a percentage point through the later part of 2024.

A record of the Federal Reserve’s May meeting released last week showed broad support among officials to hold off on changing interest rates until they had a better idea of how President Donald Trump’s trade wars affected the economy. “The Committee was well positioned to wait for more clarity on the outlooks for inflation and economic activity,” the minutes said.

Waller said he doesn’t believe private firms will “opportunistically” jack up prices on their products. During President Joe Biden’s term, progressives argued many companies increased prices to bolster their profits at the expense of consumers, calling the trend “greedflation.”

“While this may happen in isolated instances, I do not believe it will be a significant source of additional inflation above and beyond the tariff-induced increase,” Waller said.