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New tariff policy is one of the biggest economic shocks in decades
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March PCE 12-month inflation likely 2.3%; core PCE likely 2.7%
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In Q1:
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Economy grew modestly
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Labor market remained solid
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Inflation was too high but showing slow improvement
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Monetary policy is meaningfully restricting economic activity
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Hopes underlying inflation will continue to moderate
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Inflation expectations remain anchored
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Expects inflation to return to a more moderate level in 2026
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Partial tariff suspensions increase uncertainty and complicate timing
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Policy outlook is highly uncertain — Fed should remain flexible
Tariff scenarios and implications:
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Smaller tariff scenario:
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Fed could be more patient
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Rate cuts could happen in the latter half of the year
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10% average tariff scenario:
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Inflation could peak at 3%
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25% average tariff scenario:
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Inflation could peak near 5%
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Drag on output and employment could be long-lasting
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Unemployment could rise to 5%
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Believes higher inflation from tariffs will be temporary
Waller comments are more detailed and warn of higher inflation but still sees inflation as temporary.
This article was written by Greg Michalowski at www.forexlive.com.
