Fed Governor Christopher Waller said the Trump administration's tariffs posed a significant shock to the US economy that might force the Fed to cut rates to avert a recession, though they could also be just a negotiating tactic with minimal lasting impact.
New tariff policy one of the biggest shocks to affect US economy in decades.
I believe higher inflation from tariffs will be temporary.
If current 25% average tariff rate stays for some time, inflation could peak near 5%.
In this large-tariff scenario, drag on output, employment could be longer-lasting; unemployment could rise to 5%.
Under large-tariff scenario with significant economic slowdown, I'd favour cutting policy rate sooner and more than previously thought.
In scenario where tariffs drop down to 10%, inflation could peak at 3%.
Under 10% avg tariff, would see limited effects on economic activity; I would support a limited monetary policy response.
Under smaller-tariff scenario fed could be more patient, rate cuts could take place in latter half of the year.
Policy highly uncertain, Fed should remain flexible.
Partial tariff suspensions may have widened the range of possible outcomes, made timing less certain.
Inflation expectations have not become unanchored, expect inflation to return to more moderate level in 2026.
Monetary policy is meaningfully restricting economic activity, hope underlying inflation will continue to moderate.
In Q1, economy was growing modestly, labor market solid, inflation too high but making slow progress.
March PCE 12-month inflation likely was 2.3%, core PCE likely was 2.7%.

Source: Fxstreet