U.S. Federal Reserve Governor Christopher Waller has warned that steep tariff increases could significantly slow the economy later this year and into 2026. Speaking to the CFA Society of St. Louis, Waller said tariffs could raise inflation to 5% if fully passed on to consumers, or around 4% if partially absorbed.
He noted that rising trade barriers are freezing business investment and misallocating capital, reducing productivity growth. Waller described the current average effective tariff rate—around 25%—as the highest in over a century.
Despite recent inflation progress, he said further rate cuts would depend on whether inflation remains transitory. He signaled openness to “good news” rate cuts if inflation continues to fall, but warned that a sharp economic slowdown could necessitate “bad news” rate cuts to counter a potential recession.
