Higher Inflation or Recession? Fed May Choose to Ease Even as Prices Rise
Wall Street Journal’s Nick Timiraos, often referred to as the unofficial voice of the Federal Reserve due to his close coverage of the institution, has brought fresh insights from Fed Governor Chris Waller to light—revealing a tone notably more flexible than the current consensus among central bank officials.
In a recent address, Waller outlined two distinct outcomes tied to U.S. trade policy: one assuming steep tariffs remain intact, and another based on a rollback to lower baseline duties. His views hint at a willingness to prioritize economic stability over rigid inflation targets, diverging from the Fed’s prevailing hawkish tone.
High Tariff Outlook: Inflation Spike Seen as Manageable
Waller warned that if the existing 25% tariffs persist, core inflation could push up to between 4% and 5% by 2025. However, he suggested that this surge wouldn’t be long-lasting and argued that the central bank could afford to “look through” the inflationary bump—pointing to continued economic cooling, anchored expectations, and restrictive monetary policy as key factors keeping long-term risks in check.
He even opened the door to faster rate cuts in such a scenario, stating that if the economy loses steam too quickly, a short-lived inflation overshoot would be a lesser concern than the risk of tipping into recession. He referenced past policy missteps and stressed the importance of not dismissing projections simply because they’ve proven unreliable in prior cycles.
Low Tariff Case: Gentler Inflation, Cautious FED
If tariffs were scaled back to around 10% and broader trade barriers removed, Waller believes inflation would rise more modestly—peaking near 3%—and unfold more gradually. That could delay rate cuts or limit the need for aggressive action, as the inflation trajectory would be more manageable.
In this scenario, the Fed would likely take a wait-and-see approach, with policy adjustments depending on how clearly inflation trends toward the 2% target in the latter half of the year.
Timiraos notes that Waller’s remarks underscore a more adaptive stance compared to the firm anti-inflation narrative prevalent at the Fed. While most officials are intent on avoiding premature easing, Waller appears more concerned about the economic toll of prolonged tightening than about inflation running modestly above target in the short term.
Alex is Editor-in-Chief of Coindoo and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets - crypto first, then everything else. It started in 2016 with Bitcoin. Like most people at the time, he didn't fully understand it - so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can't properly understand one without the other. What drives him is straightforward: he wants to know why something is happening, not just that it's happening. Most market coverage stops at the headline - price up, price down, here's a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn? He holds a degree in Tourism from New Bulgarian University - not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That's probably why he hasn't stopped.
