Federal Reserve Governor, Christopher Waller, told CNBC in a recent interview he doesn't believe the Trump administration's tariffs will notably increase inflation. Waller suggested that the Federal Reserve could possibly reduce its fundamental federal funds rate as soon as the upcoming meeting in late July, a move faster than investors were anticipating.
Throughout this year, Fed officials had hesitated to lower the fed funds rate, which was higher than average. Their wait-and-see approach was primarily to observe whether Trump's tariffs, passed on to consumers by retailers, would reignite inflation.
However, Waller cited data showing lower-than-expected inflation, combined with other positive economic growth indicators, such as a steady unemployment rate, as reasons to reconsider. "I think we have room to bring [the fed funds rate] down, and then we can see what happens with inflation,” said Waller.
Earlier this week, the Federal Reserve's policy committee decided to maintain its significant interest rate at the same level it had been since December. Waller, among the twelve voters, did not back a cut.
Nevertheless, predictions released Wednesday suggest an emerging division among Fed officials over future steps. Over a third of the committee predicts no rate cuts this year, while a similar number of members foresee at least two rate cut occurrences. Three more Fed officials, compared to the last round of predictions, believe no rate cuts will occur this year.
Despite this, most investors anticipate the Federal Reserve will maintain current interest rate levels in the coming month. The CME FedWatch Tool, which estimates future interest rates based on trading of Fed funds futures, illustrates that investors have anticipated a mere 15% probability that rates will be cut during the next Fed meeting on July 30.