Federal Reserve Governor Waller dropped a 'policy bomb' on Monday, April 14th! In his latest speech, he rarely acknowledged that the Trump administration's tariff policies may force the Federal Reserve to cut interest rates to prevent recession when inflation is high. This groundbreaking statement instantly ignited the market, as it means that the Federal Reserve may break the traditional policy framework of 'inflation not falling, interest rates not loosening'.

The Federal Reserve's' Dilemma '

Waller depicted two completely different policy paths:

1) If comprehensive tariffs are implemented, the economy may "almost stagnate" and the unemployment rate may soar to 5%. At that time, even if inflation exceeds the standard, there will be an urgent interest rate cut;

2) If tariffs are controlled at around 10% and the economy only slows down moderately, interest rate cuts can still be made as originally planned for the second half of the year.

This senior Federal Reserve official bluntly stated, "This is the biggest shock to the US economy in decades," and policymakers are facing the "elephant in the room" - walking a tightrope between inflation and recession risks.

The critical point of policy shift

Waller emphasized that when the risk of economic recession is significant, "I would support earlier and larger rate cuts than expected, even if inflation remains above the 2% target. This statement overturns traditional understanding, as the Federal Reserve usually insists on tightening when inflation is high. However, he also added that if the impact of tariffs is limited, the plan of "cutting interest rates three times this year" may still be realized.

The market has a profound impact

At present, the Federal Reserve's interest rate remains in the range of 4.25% -4.5%, but Waller's speech implies that the policy balance is tilting. Analysts point out that this policy orientation of "recession before inflation" may trigger a market pattern of a weakening US dollar and a strengthening gold. What is even more alarming is that Waller admitted that the current environment is "difficult to form a coherent outlook", indicating that market volatility may intensify in the future.

Summary:

The Federal Reserve's "policy forecast" this time is like a major earthquake! When the shadow of economic recession looms, even the Federal Reserve is preparing to let go of its inflation obsession and turn to rescue the market, which may indicate that global monetary policy will enter a new era. For investors, they must now closely monitor two key variables: the final size of tariffs and the direction of the June FOMC meeting, as any slight movement could trigger a market tsunami.