Fed: Tariffs are the greatest shock that affects the US economy – Christopher Waller

The governor of the Fed, Christopher Waller, said that the Trump administration tariffs represented a significant shock for the US economy that could force the Fed to cut rates to avoid a recession, although they could also be just a negotiation tactic with a minimum lasting impact.

Key aspects

• The new tariff policy is one of the greatest shocks that affect the US economy in decades.
• I think the highest inflation due to tariffs will be temporary.
• If the average tariff rate of 25% is maintained for some time, inflation could reach a peak close to 5%.
• In this stage of high tariffs, the impact on production and employment could be more durable; Unemployment could increase to 5%.
• Under a stage of high tariffs with a significant economic slowdown, it would favor cutting the policy rate before and more than thought above.
• In a scenario where tariffs fall to 10%, inflation could reach a 3%peak.
• Under an average tariff of 10%, it would see limited effects on economic activity; would support a limited monetary response.
• Under a tariff minor scenario, the Fed could be more patient, feature cuts could take place in the second half of the year.
• Politics is highly uncertain, Fed must remain flexible.
• Partial tariff suspensions may have expanded the range of possible results, making the moment less true.
• Inflation expectations have not been disagree, I hope inflation returns to a more moderate level in 2026.
• Monetary policy is significantly restricting economic activity, I hope that underlying inflation continues to moderate.
• In the first quarter, the economy was growing modestly, the solid labor market, inflation too high but slowly advancing.
• The PCE inflation 12 months in March was probably 2.3%, the underlying PCE was probably 2.7%.