Fed Governor Waller: I'm inclined to cut rates earlier and more sharply if there's a significant slowdown

Fed Governor Waller says the new tariff policy is one of the biggest shocks to the U.S. economy in decades. I think high inflation due to tariffs will be temporary. If the current average tariff rate of 25 per cent is maintained for some time, inflation may peak at a level close to 5 per cent; in the case of a reduction to 10 per cent, inflation may peak at 3 per cent. In the high tariff scenario, the drag on output and employment is likely to be more persistent; unemployment could rise to 5 per cent. In the massive tariff scenario, if there is a significant slowdown, I would be inclined to cut rates earlier and more sharply than previously thought. In a scenario with average tariffs of less than 10 per cent, there would be a limited impact on economic activity; I would support a limited monetary policy response. In a smaller tariff scenario, the Fed may be more patient and rate cuts could come in the second half of the year. Policy is highly uncertain and the Fed should remain flexible. A partial tariff moratorium may widen the range of potential outcomes, making the timing (of a rate cut) less certain. Inflation expectations have not lost their stability and inflation is expected to fall back to more moderate levels in 2026. Monetary policy is significantly restraining economic activity and underlying inflation is expected to continue to moderate to the downside.