President Trump's tariffs are expected to raise inflation in the U.S., although it's uncertain if this increase will be temporary or lasting. This situation mirrors discussions at the Federal Reserve during the COVID-19 pandemic when inflation was initially labeled as transitory. Fed Governor Christopher J. Waller presented two potential scenarios regarding these tariffs, both of which could significantly affect inflation and economic growth. If a recession occurs, Waller indicated support for earlier and more significant interest rate cuts than initially planned, emphasizing the importance of managing inflation expectations.
"If a recession appears to be taking shape, Mr. Waller said he would support the Fed cutting interest rates sooner and to a greater extent than initially expected."
"Mr. Waller laid out two scenarios that may play out for Mr. Trump's tariffs, which the Fed governor described as one of the biggest shocks to affect the U.S. economy in many decades."
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