Federal Reserve Governor Waller Says Tariff Effects on Inflation Could Be Large, Though Possibly Temporary

01:43 PM EDT, 04/14/2025 (MT Newswires) -- The inflation impact from the Trump Administration's tariffs could be large, but possibly temporary, Federal Reserve Governor Christopher Waller said Monday at Certified Financial Analysts Society of St. Louis.

Waller suggested that inflation could move as high as 5% depending on the ultimate size of the tariffs but is likely to slow as long as inflation expectations remain anchored.

"I am saying that I expect that elevated inflation would be temporary, and 'temporary' is another word for transitory," Waller said. "Despite the fact that the last surge of inflation beginning in 2021 lasted longer than I and other policymakers initially expected, my best judgment is that higher inflation from tariffs will be temporary."

Waller laid out two possible paths for tariffs depending on if they are lifted and then held there, or if they are implemented as a negotiating tool and then lowered later.

Not knowing which scenario will play out leaves the Federal Open Market Committee with a difficult task of managing monetary policy, meaning the FOMC will need to remain flexible and act cautiously.

"While I expect the inflationary effects of higher tariffs to be temporary, their effects on output and employment could be longer-lasting and an important factor in determining the appropriate stance of monetary policy," Waller said. "If the slowdown is significant and even threatens a recession, then I would expect to favor cutting the FOMC's policy rate sooner, and to a greater extent than I had previously thought."

Waller added that the balancing act between above-target inflation and slowing growth would likely tip toward slower growth.

"With a rapidly slowing economy, even if inflation is running well above 2%, I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs in raising inflation are expected to be short lived," Waller said.

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