Federal Reserve Governor Christopher Waller will speak at the Clearinghouse Annual Meeting held in New York City on November 12th, 2024.
Brendan McDermid | Reuters
Federal Reserve Gov. Christopher Waller said Monday that he expects the impact of President Donald Trump’s tariffs on prices will be “temporary” and will accept a term in which the central bank was in trouble during the final game of inflation.
“This already sounds like this must be a mistake given what happened in 2021 and 2022. But just because it didn’t work doesn’t mean you shouldn’t think of it that way again,” Waller said in his statement in St. Louis’ policy speech compared to his inf review and controversial “tash-push” football play.
Laying out two scenarios about how the job will ultimately turn out, Waller said that larger and longer-term tariffs will initially result in a large inflationary spike in the 4% to 5% range, eventually slowing growth and waning as unemployment increases. In a smaller tariff scenario, inflation reaches about 3% and then falls.
In both cases, he said the Fed’s cut rates are still visible, with timing being the only question. Higher tariffs could force reductions to support growth, but if there is less obligation, Waller added, could allow for “good news” cuts later this year.
“Yes, I say I expect the rise in inflation is temporary and “temporary” is another temporary term,” he said. “My best judgment is that the last surge in inflation that began in 2021 has lasted longer than I and other policymakers initially expected, but higher inflation from tariffs will be temporary.”
The “temporary” term returned to the inflationary spike in 2021, with FED officials and many economists hoping to ease after supply chains and demand factors related to the Covid-19 pandemic.
However, prices continued to rise, reaching its highest since the early 1980s, requiring a series of dramatic rate hikes. Inflation has been pulled back significantly since the Fed began procurement in 2022, but has surpassed the central bank’s 2% target. The Fed cut its benchmark borrowing rates in the second half of 2024, but this year it has not been cut any further.
During his first term as president, Waller, Trump’s appointee, used football analogy to explain his views on “temporary” inflation. He cited the famous “tash push” play of the Philadelphia Eagles.
“You’re the Philadelphia Eagles, you’re a few inches from the goal line, you call a tash push, but you can’t run the ball and turn around,” he said. “That didn’t work the way you expected, so does that mean you shouldn’t call Tush Push when you face a similar situation next? I don’t think so.”
Waller estimated that Trump had one of two tariff targets. Keep taxes high and rebuild the economy or use them as negotiation tactics. In the first case, he slows growth “to crawl” while unemployment rates rise “significantly”. If tariffs are negotiated, he believes the impact on inflation will be “significantly less.”
In other cases, he said “one of the biggest shocks affecting the US economy for decades” has made forecasting and policy decisions difficult. Fed officials need to “maintain flexibility” in determining their future paths.
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