Federal Reserve governor Christopher Waller said the central bank should cut interest rates further if inflation makes more progress back toward target, even if Trump administration policies are adding economic uncertainty.
Speaking in Australia at Sydney’s University of New South Wales on Tuesday, Waller said the Fed made the right call to hold rates steady in January, given persistent recent price increases. But he added that he still believes the Fed’s policy stance is restraining the economy, and that more cuts will be the right move if the inflation uptick passes.
“If this wintertime lull in progress is temporary, as it was last year, then further policy easing will be appropriate,” Waller said, according to a published text of his remarks.
Data published last week by the Labor Department showed U.S. inflation has continued an unwelcome reacceleration. Last spring, the consumer-price index was close to flat month-over-month in May and June, which helped set the stage for a half-point Fed rate cut in September and further reductions at the next two Fed meetings. But since then, price increases have picked up, hitting a 0.5% pace in January.
That pushed the 12-month CPI inflation rate back up to 3%, from 2.4% in September.
The Fed’s preferred inflation metric, the personal-consumption expenditures price index, might be in better shape. Many analysts believe it is on track to fall to 2.5%, from 2.6% in December , when January data are released later this month, modestly above the Fed’s 2% target.
Some economists have speculated that the Fed might decide against further rate cuts because of the potential inflationary effects of Trump administration policies, such as steep new tariffs and deportations of immigrants in the country illegally. But Waller said the central bank shouldn’t be too hesitant.
“We must keep in mind that there is always a degree of uncertainty about economic policy, and we need to act based on incoming data even when facing great uncertainty about the economic landscape,” Waller said. “We have done this in the past and will continue to do so in the future.”
He cited Fed rate hikes in 2022 that came shortly after the Russian invasion of Ukraine, and a 2023 hike that coincided with a string of bank failures, as times when the Fed was right to act decisively even amid uncertainty.
Waller’s remarks contrasted with a Monday speech by Fed governor Michelle Bowman, who re-emphasized her cautious view of further rate cuts in the face of persistent inflation. Bowman, who in September dissented against the Fed’s half-point rate cut , said in her speech that patience will give the Fed a stronger understanding of the policy landscape.
“It will be very important to have a better sense of these policies, how they will be implemented, and establish greater confidence about how the economy will respond in the coming weeks and months,” Bowman said.
Waller and Bowman were both nominated to the Fed’s board of governors by President Trump during his first administration.
Even as some investors have grown skeptical that the Fed will resume cutting interest rates before later this year, Waller recently emphasized the likely need for more reductions.
“I can certainly see rate cuts happening sooner than maybe the markets are pricing in,” Waller told CNBC in January. He added in that interview that he might be more optimistic than other Fed policymakers that inflation will continue to fall.
Bets in interest-rate futures markets reflect a strong conviction that the Fed will leave rates steady until at least mid-June, and that the Fed is likely to bring rates lower again in the second half of 2025.
Write to Matt Grossman at matt.grossman@wsj.com
