More Interest Rate Cuts Possible Even Under Trump Tariffs, Fed Governor Says

Federal Reserve Gov. Christopher Waller testifies before the Senate Banking, Housing, and Urban Affairs Committee in Washington on Feb. 13, 2020. Sarah Silbiger/Getty Images

Federal Reserve Gov. Christopher J. Waller is backing more interest rate cuts even if higher tariffs are imposed on imports, a trade policy pushed forward by President-elect Donald Trump.

“Tariff proposals raise the possibility that a new source of upward pressure on inflation could emerge in the coming year,” Waller said during a Jan. 8 speech in France. “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.’”

Waller added, “The extent of further easing will depend on what the data tell us about progress toward 2 percent inflation, but my bottom-line message is that I believe more cuts will be appropriate.”

The 12-month inflation in November was at 2.7 percent. The last time the inflation reading was below the 2 percent level was in February 2021.

Waller said he expects inflation to move toward the Fed’s 2 percent target in the medium term. He said the pace of rate cuts will depend on how much progress is made on inflation while keeping the labor market from weakening.

Trump has suggested imposing a wide range of tariffs on several nations. He has signaled a 60 percent tariff on Chinese imports and ending the country’s most-favored nation trading status.

The incoming president said he planned to impose additional 10 percent tariffs, on top of other tariffs, on imports from China as long as Beijing does not take concrete action to stop the flow of drugs, especially fentanyl, into the United States.

Trump also threatened to impose 25 percent tariffs on all goods coming from Mexico and Canada, citing the failure of the United States’ northern and southern neighbors to prevent massive illegal immigration via their borders into the United States.

The effects of these tariffs could trigger inflation, making decisions regarding interest rate cuts complicated.

Lisa D. Cook, a member of the Fed’s board of governors, said during a Jan. 6 speech that the labor market has been “somewhat more resilient” since September while inflation has remained “stickier” than expected.

“I think we can afford to proceed more cautiously with further cuts,” Cook said.

The Fed cut interest rates three times last year, pushing them down to a range of 4.25–4.5 percent. In December 2024, the Fed said it expects fewer cuts this year, citing inflationary concerns.

Jobs Data and Rate Cuts

New employment data released this week suggest the Fed may not reduce its benchmark rates anytime soon. In December 2024, 256,000 new jobs were added, up from 212,000 in November, according to data from the Bureau of Labor Statistics.

In a Jan. 10 report, ING Bank said that the 256,000 job additions were far higher than the consensus figure of 165,000. In addition, the unemployment rate fell from 4.2 to 4.1 percent while wages rose by 0.3 percent.

“All of this provides clear backing for a no-change interest rate decision from the Federal Reserve later this month,” the report said.

“The market is pricing less than 1bp of a 25bp rate cut—and the risk of an extended pause has increased with the market no longer fully discounting a rate cut until September.”

ING said that for now, its forecast for three interest rate cuts this year “may be too aggressive.”

A vast majority of interest rate traders do not expect any rate changes in the next Fed meeting scheduled for Jan. 28–29.

Meanwhile, commenting on the jobs report, outgoing President Joe Biden said his administration has “created over 16.6 million jobs” and that “this is the only administration in history to have created jobs every single month.”

However, U.S. financial markets declined following the jobs report, with the Dow Jones and Nasdaq indices tanking on Jan. 10.

“This report is going to fuel a continuation of higher yields and pushes off the next Fed rate cut off even further,” Bryce Doty, senior portfolio manager and senior vice president at Sit Fixed Income Advisors, said in an emailed note to The Epoch Times. “We might not see another rate cut until next quarter.”

Andrew Moran contributed to the report.