Fed's Waller: Tariffs are one-time price event that policymakers should look through

Key takeaways

"I dissented because I concluded that cutting the policy rate by 25 basis points was the appropriate stance of policy."

"Believe tariffs are a one-time price event that policymakers should 'look through' as long as inflation expectations remain anchored, which they are."

"Host of data argues that monetary policy should now be close to neutral, not restrictive."

"While job market looks fine on the surface, other data suggest that the downside risks to the labor market have increased."

"Fully respect the views of my colleagues on the FOMC that suggest we need to take a 'wait and see' approach, but that is overly cautious."

"See no reason that we should hold the policy rate at its current level and risk a sudden decline in the labor market."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen rising 0.1% on the day at 100.15.

These comments by Waller received a dovish score of 3.8% from FXStreet Fed Speech tracker. Nevertheless, FXStreet Fed Sentiment Index holds in hawkish territory, slightly above 120.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.