Fed’s Waller Supports Rate Cut Pause, Signals Potential Reductions Later in 2025

U.S. Federal Reserve Governor Christopher Waller has expressed his support for holding off on any further interest rate cuts for now, as inflation continues to show uneven progress. However, Waller left the door open for future reductions later this year if inflation trends align similarly to 2024.

In a speech delivered on February 17, 2025, in Sydney, Australia, Waller noted that the inflation progress made in January was "disappointing" and uneven. Still, he stated that if inflation continues to stabilize in the same pattern as last year, then rate cuts could be appropriate at some point later in 2025.

Current Monetary Policy Status

Waller, who chairs the Fed Board’s payments subcommittee, emphasized that the current level of monetary policy is still putting some downward pressure on inflation while moderately restricting economic activity. He added, “I continue to believe that the current setting of monetary policy is restricting economic activity somewhat and putting downward pressure on inflation.”

The prospect of rate cuts is particularly important for riskier assets like Bitcoin (BTC), as lower borrowing costs tend to encourage investors to seek out higher-risk investments. In this context, market participants view a reduction in rates as bullish for the crypto market.

“If this winter-time lull in progress is temporary, as it was last year, further policy easing will be appropriate,” Waller explained. However, he also noted, “Until that is clear, I favor holding the policy rate steady.”

Fed’s Recent Actions and Inflation’s Persistence

The Fed had reduced interest rates by one percentage point during the latter months of 2024, but chose to keep rates unchanged in their January 2025 meeting. Waller acknowledged that inflation has been more persistent than initially anticipated, and while 12-month inflation data is lower than in January 2024, the numbers remain “too high” for comfort.

This ongoing inflationary pressure has led markets to push back expectations for further rate cuts in 2025. According to the latest data from CME Group’s FedWatch Tool, the chances of a modest 0.25% rate cut in the upcoming March 2025 Fed meeting stand at just 2.5%.

Impact of Tariffs on Inflation

In his speech, Waller also addressed the potential impact of U.S. trade policies on inflation. Specifically, he downplayed concerns that tariffs imposed by former President Donald Trump would significantly stoke inflation. Waller speculated that the tariffs could "only modestly increase prices in a non-persistent manner," though he did acknowledge that the impact could be larger than expected depending on how the tariffs are implemented.

On February 13, President Trump signed an executive order to impose reciprocal tariffs on the U.S.'s trading partners, which could include provisions for non-monetary policies to meet the criteria for a reciprocal import tax.

Earlier, on February 1, Trump imposed tariffs on Canada, Mexico, and China, triggering a sharp market downturn that affected both stock and crypto markets. However, the markets rebounded after a 30-day pause on tariffs against Mexico and Canada was announced on February 3.

Conclusion

As inflation proves more stubborn than expected, Christopher Waller remains cautious but optimistic about the potential for future rate cuts, should inflationary trends improve. With the crypto market closely monitoring Fed actions, rate cuts in 2025 could be seen as a catalyst for further growth.

For now, however, Waller believes that holding rates steady is the prudent course of action until inflationary trends stabilize. The coming months will be crucial in determining if further policy adjustments are necessary to steer the economy toward sustained growth while keeping inflation in check.