Fed Holds Line on Rate Cuts Despite Tariff Turmoil—Because Wall Street Always Wins

The Federal Reserve just signaled it’s sticking to its rate-cut guns—even as trade wars threaten to derail the economy. Because why let pesky tariffs interfere with the real priority: juicing asset prices?

Market watchers brace for impact as Powell walks the tightrope between inflation and political pressure. Spoiler alert: banks will still find a way to profit either way.

Meanwhile, Main Street gets to enjoy the collateral damage. Classic Fed playbook.

Tariffs will drive near-term inflation rise, but it will be short-lived

Waller’s openness to cutting rates if the economy allows stands in contrast to other central bank officials who have been more cautious, choosing to wait and see. He did caution that the economy has so far felt little impact from tariffs, but that could change.

“I see downside risks to economic activity and employment and upside risks to inflation in the second half of 2025, but how these risks evolve is strongly tied to how trade policy evolves,” he said. Waller pointed out that higher tariffs will reduce spending, and businesses will respond “in part by reducing production and payrolls.”

He said tariffs will be the main driver of any near-term inflation rise, but those price jumps would likely be one-time events, “most apparent in the second half of 2025.”

If duties remain at a more modest level, around 10%, he believes some of the cost increases won’t fully be passed on to consumers. He also noted that the odds of facing a “large” tariff scenario have fallen.

Past inflation drivers are not present today

Waller said some of the worry about inflation stems from missteps during the pandemic, when many expected rising prices to be temporary.

“What often has people spooked is we had the same view in 2021, that all this stuff was transitory, it was a one-time level effect, and then it would all go away,” he remarked. “And that just turned out to be wrong.” However, he pointed out that the factors that made inflation stick around back then are not present today.

On the question of inflation expectations, Waller said he places more weight on what markets and professional forecasters predict rather than opinion surveys. Real-world data, he added, have not shown much change in the expected path of inflation. Waller turned to the recent rise in bond yields, which came amid growing caution toward dollar-denominated assets due to Trump’s trade actions.

He said higher borrowing costs are tied to concerns about growing government debt and questions about how open the U.S. is to foreign investment. “There seems to be an attitude that foreign buyers of assets are not welcome in some sense,” he said, referring to certain government statements.

“There’s been a risk-off attitude from foreign buyers of Treasuries, all U.S. assets … It’s not really that big, but it’s definitely there,” he added.

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