Pausing Interest Rate Cuts Is Appropriate Given Inflation Concerns: Fed Governor

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

The U.S. Federal Reserve’s decision to halt bringing down its benchmark interest rate is the right choice at the moment given the difficulty in tackling inflation, according to Christopher J. Waller, member of the board of governors at the central bank.

“For now, I believe a pause in rate cuts is appropriate,” Waller said during a Feb. 17 speech in Australia, citing various economic data to justify the stance. “The labor market is balanced and remarkably resilient.” Meanwhile, “inflation is still meaningfully above our target” of 2 percent. The 12-month inflation rate has consistently remained above the 2 percent level since March 2021.

Progress on inflation has been “excruciatingly slow over the last year,” the Fed governor said. “This tells me that we should currently have a restrictive setting of policy, as we do—to continue to move inflation down to our goal.” However, as inflation moves closer to the 2 percent target, monetary policy “should be getting closer to neutral.”

Waller said the data do not support reducing the policy rate at the present moment. “If 2025 plays out like 2024, rate cuts would be appropriate at some point this year.”

Last year, the Fed cut the federal funds interest rates three times, to reduce it by 1 percentage point, bringing the rate down to a range of 4.25–4.5 percent. In December, the Fed said it expects to see fewer rate cuts this year, citing inflation concerns.

During a Feb. 10 appearance before the Senate Banking Committee, Fed Chair Jerome Powell suggested a measured approach to reducing rates.

“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” said Powell. “We know that reducing policy restraint too fast or too much could hinder progress on inflation.”

“At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”

Tariffs and Interest Rates

In his speech, Waller signaled that he doesn’t expect much of an impact from President Donald Trump’s various tariffs on inflation.

“My baseline view is that any imposition of tariffs will only modestly increase prices and in a non-persistent manner,” said the Fed governor.

“I concede that the effects of tariffs could be larger than I anticipate, depending on how large they are and how they are implemented. But we also need to remember that it is possible that other policies under discussion could have positive supply effects and put downward pressure on inflation.”

Waller said policy actions should be guided by data and not speculation about what may happen.

If incoming data support continuing with the rate-cut pause or going ahead with further reductions, then such an action must be taken “regardless of how much clarity we have on what policies the administration adopts,” he said.

In a Feb. 12 post on Truth Social, Trump had suggested that interest rates should be lowered, “something which would go hand in hand with upcoming tariffs.”

Powell told Congress last week that Trump’s call for lowering rates will not influence the central bank’s decision-making and that the Fed was committed to deciding monetary policy on the basis of data.

“People can be confident that we’ll continue to keep our heads down, do our work, and make our decisions based on what’s happening in the economy,” Powell said during a recent testimony to Congress.

Powell was appointed to his post in 2018 by Trump. In 2019, the president clashed with the Fed after the agency refused to reduce interest rates. During his campaign for the 2024 presidential election, Trump said that presidents must have more influence over the decisions taken by the Fed.

When the Fed signaled rate cuts in September, Trump accused Powell of being politically motivated, suggesting that the decision was taken to boost former President Joe Biden’s chances of winning the election. Powell responded that the decision was taken after economic considerations and was not political.