Federal Reserve Governor Christopher Waller stated that the Fed will not purchase bonds in primary auctions. If the Trump administration’s tariff policies stabilize around 10%, the Fed may cut interest rates in the second half of 2025. The Fed reiterated its policy stance of avoiding direct participation in government bond issuance.
On the 22nd, Waller emphasized that the Fed would not buy bonds in primary auctions. If tariff impacts stabilize, the Fed is expected to cut rates in late 2025. “If tariffs can be reduced to around 10% and finalized by July, we could see rate cuts in the second half of the year,” he said. He believes any tariff-related inflation spikes would be temporary. However, reverting to higher tariffs would “have a more significant inflationary impact and limit our ability to act on short-term rates.” Due to lingering uncertainties over tariffs, inflation, and economic growth, financial markets expect the Fed to delay rate cuts until September. Waller noted that business leaders he spoke with could tolerate 10% tariffs but “could not handle” higher rates. He also commented on the recent Treasury market sell-off. On Wednesday, long-term bond yields surged, with the 30-year yield exceeding 5%, a 2023 high, following weak demand for 20-year Treasury auctions. When asked about the sell-off, Waller cited concerns among market participants about the Republican tax bill: “They expected more fiscal restraint but are not seeing it.” Shortly before Waller’s remarks, the Trump-era tax bill narrowly passed the House. The bill, now headed to the Senate, would extend Trump-era tax cuts, raise the debt ceiling, and increase the deficit. Market reactions were immediate: U.S. stock futures dipped, with Nasdaq futures down 0.27%, S&P 500 futures down 0.32%, and Dow futures down 0.45%. Spot gold pared losses to 0.07%, trading at $3,313.16/oz. The U.S. 5-30 yield curve steepened to 100 bps. After initial declines, major U.S. indices recovered slightly, with the S&P and Dow closing lower and the Nasdaq eking out a 0.28% gain. The 30-year Treasury yield retreated from 5%.050%.
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