Waller: High tariffs could prompt the Federal Reserve to cut interest rates

Federal Reserve governor Christopher Waller recently warned in an interview that if the Trump administration reinstates its aggressive tariff policies, it could lead to increased layoffs by American businesses and a rise in unemployment, prompting him to support the Fed in taking interest rate cuts.

Waller pointed out that if high tariffs are reinstated, it is expected to have a negative impact on the labor market, potentially increasing unemployment. He stated, "I wouldn't be surprised if layoffs increase and unemployment rises significantly." Waller also added that if the labor market deteriorates, he expects the Fed to cut rates more rapidly.

Earlier this month, Trump signed an executive order announcing "reciprocal tariffs" on all trading partners. However, he later stated that increased tariffs for some countries would be suspended for 90 days, but would retain a 10% base tariff. Waller believes that although the impact of tariff policy on the economy will be limited before July, if high tariffs are reinstated after July, unemployment may rise, and the increase could be significant.

Waller also emphasized that although tariffs may bring short-term inflationary pressure, he sees it as a temporary shock. He stated that the Fed would not overreact to inflation caused by tariffs, but if the labor market significantly deteriorates, the Fed will step in to meet its employment goals.

In addition, Federal Reserve Chairman Powell previously stated that the current US economic situation is good, with unemployment at 4% and inflation near the Fed's 2% target, so the Fed is "not in a hurry" to cut rates. However, Powell also mentioned that if the labor market unexpectedly cools or inflation declines faster than expected, the Fed will adjust its policy accordingly.

Cleveland Fed President Beth Hammack also recently stated that if sufficient economic data is obtained, the central bank could adjust rates as early as June. She noted that officials may not have enough information before the May meeting, but if more clear evidence on economic growth and inflation trends is obtained in subsequent meetings, the Fed may take action.

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