A growing debate is unfolding within the Federal Reserve as officials weigh whether to maintain current interest rates or begin setting the stage for potential rate cuts later in the year. The crux of the discussion lies in assessing the long-term inflationary impact of new tariffs introduced by former President Trump.

Some policymakers, including Federal Reserve Governor Chris Waller, argue that inflation stemming from the tariffs is likely to be short-lived and should not influence long-term monetary policy decisions. Speaking in Seoul, South Korea, Waller noted that inflation expectations remain stable, and the labor market is strong — both of which support a more patient stance on rates.

"Because I believe tariff-related inflation will be temporary and expectations remain well-anchored, I favor looking past these effects when determining the appropriate policy rate," Waller said.

This perspective closely mirrors that of the White House, which has downplayed the lasting impact of tariffs on consumer prices. Trump, for his part, has been vocal in urging the Fed — and Chair Jerome Powell — to lower interest rates.

While many within the Federal Open Market Committee (FOMC) are concerned that trade-related inflation could persist and warrant continued restraint, Waller left the door open to what he called "good news" cuts. He suggested that if inflation continues to move toward the Fed’s 2% target and employment conditions remain healthy, rate reductions could be considered later in the year — particularly if the effective tariff rate settles near 15%, as he now anticipates.

For now, the Fed appears to be in wait-and-see mode, closely monitoring both economic indicators and the evolving landscape of global trade policy.

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