Waller: Tariffs a major shock, with wide array of possible outcomes

High tariffs under the Trump administration may lead the U.S. Economy into a recession, prompting interest rate cuts by the Federal Reserve even amid high inflation. Waller suggests if tariffs remain high, output and employment will feel long-term effects.

Should negotiations reduce tariffs to an average of around 10%, Waller believes the economic outlook could stabilize, maintaining inflation on a downward trajectory toward the 2% target. This would allow for potential favorable rate cuts later this year.