Governor Waller’s Insightful Speech: Navigating the Future of Our Economic Landscape

Thank you for the opportunity to speak with you today. I’ve spent nearly 12 years in this city and now serve as a Governor at the Federal Reserve Board. I’m excited to discuss the current outlook for the U.S. economy and its implications for monetary policy.

Usually, I talk about economic trends, but a lot has changed recently, especially with tariffs. The increases announced earlier this month were much larger than expected, adding to already existing tariffs and triggering some international pushback. This could have a big impact on the economy and the Federal Open Market Committee’s (FOMC) goals. With the uncertain trade landscape, I’ve found it challenging to develop a clear prediction for the economy.

Financial markets reacted negatively to the tariff announcements. Fortunately, some tariffs were suspended for 90 days recently, as negotiations continue, but we still have a 10 percent tariff on most imports and increased tariffs on goods from China. Whether this leads to a final agreement is unknown, creating even more uncertainty.

Before diving into potential economic scenarios, let’s look at how the economy was doing before these trade changes. The economy appeared strong in the first quarter of 2025, showing modest growth despite some signs of slowdown. Employment figures were encouraging, with 228,000 jobs added in March, keeping the labor market healthy. Consumer spending did see a dip but may rebound as we get more data this month. Higher imports might have been a reaction to fears over new tariffs, which could level out in the future.

Inflation is another concern. After fluctuating last year, recent data indicates progress towards our 2 percent goal. For instance, the Consumer Price Index (CPI) showed a 0.1 percent decline in March. However, core inflation, which excludes volatile food and energy prices, remained elevated at 2.7 percent over the past year. Expectations around inflation play a crucial role here.

Now, let’s explore the impact of tariffs more specifically. As of December 2024, tariffs were under 3 percent, but recent changes have driven the average to about 10 percent. There’s still uncertainty about how long these elevated tariffs will last. This leads to two possible scenarios:

1. If high tariffs persist—around 25 percent or more—this could significantly slow the economic growth rate. Businesses might hold back on investment due to uncertainty, and consumer spending could decrease because of price increases.

2. Alternatively, if negotiations lead to lower tariffs, we could see better economic health with limited negative impacts on inflation. The new tariffs would still pose risks but would likely allow the economy to continue growing.

Historical data suggests that previous tariff increases have led to short-term inflation spikes, but they could stabilize over time. Recent surveys indicate that consumers are worried about future inflation, but market-based measures have not shown significant increases—suggesting that investors believe these changes might only affect prices temporarily.

In terms of unemployment, if high tariffs stay in place, we might see a rise in unemployment rates, potentially nearing 5 percent by the next year. Historically, once unemployment trends upward, it can continue to rise.

In summary, while the situation with tariffs represents a significant change for the U.S. economy, it’s important to keep in mind that this is still an evolving issue filled with uncertainty. As we move forward, flexibility in monetary policy will be essential. The U.S. economy has faced shocks before, and our resilient system should enable us to navigate these challenges again.

Stay tuned as we monitor these developments together. For more insights on the economic implications of trade policies, you can refer to the Federal Reserve Board’s recent communications for ongoing updates.

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