CNBC Transcript: CNBC Exclusive: Federal Reserve Governor Christopher Waller Speaks with CNBC's Steve Liesman on 'Squawk Box' Today

WHEN: Today, Friday, June 20, 2025
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Governor Christopher Waller on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Friday, June 20. Following is a link to the video on CNBC.com: https://www.cnbc.com/video/2025/06/20/watch-cnbcs-full-interview-with-federal-reserve-governor-christopher-waller.html.
All references must be sourced to CNBC.
STEVE LIESMAN: I'm pleased to bring in Fed Governor Christopher Waller. He is joining us this morning from Washington. Good morning, Governor Waller.
GOVERNOR CHRISTOPHER WALLER: Morning, Steve. Thanks for having me on.
LIESMAN: Thanks for joining us. I just want to begin. Big debate, and you can see it in the outlook for rates from the summer of economic projections. Where do you stand in this debate right now over how much concern we all should have over coming potential inflation from tariffs?
WALLER: Steve, you know, as I've been saying for probably a year, I think the important thing for central banks to do is to look through tariff effects on inflation. This is a long standing view going back 40,50, years. So any tariff inflation we should see, and I've given various estimates that I don't think it's going to be that big, and we should just look through it in terms of setting policy, and look at the kind of underlying trend of inflation. And right now, the data the last few months has been showing that trend inflation is looking pretty good, even on a 12 month basis. So I've labeled these good news rate cuts, when if inflation comes down to target, we can actually bring rates down. I've been saying this since about November of 23. So I think we're in that position that we could do this and as early as July.
LIESMAN: You think you could cut rates as early as July?
WALLER: Well, I think that would be my view, whether the committee would go along with it or not, but I think we are in the position that the data is good. GDP growth is going to be near target, our long run target in the first half of this year. Unemployment is at our long run target. Inflation is running very close to target. Yet, we're 125 to 150 basis points above where the median long run neutral policy ratio. So I think we've got room to bring it down, and then we can kind of see what happens with inflation. If it got that really bad, and people got very nervous, you could just pause. But I think we're in a good spot right now for talking about bringing the rate down.
LIESMAN: Would you want to begin a process of bringing rates down by 125 to 150 basis points now?
WALLER: No. I think you'd want to start slow and bring them down, just to make sure that there's no big surprises. But start the process. That's the key thing. We can start the process of bringing rates down, and then if there's some big shock due to maybe the Middle East conflict, we can pause. You know, that's not – we paused back in January. We've been on pause for six months to wait see. And so far, the data has been fine. There hasn't been any reason to, in my view – I shouldn't speak – I don't think the committee or the chair, but I don't think we need to wait much longer, because even if the tariffs come in later, the impacts are still the same. It should be a one off level effect and not cause persistent inflation.
LIESMAN: So let's talk about this, I guess, difference of opinion with some on the committee. Obviously, the SEP showed that the forecast showed that seven members don't want to cut rates at all. What is the urgency right now in your mind to cut interest rates? Why wouldn't you want to just wait and see what the inflation – what happens with tariffs and inflation in the coming months before you started cutting interest rates?
WALLER: Right, so we've been on pause for six months thinking that there was going to be a big tariff shock to inflation. We haven't seen it. We follow the data. That is what we do. We look at the data and we should be basing policy based on the data. And as I said, if you look forward to if you think this inflation is going to hit in August or September, it doesn't matter. It's the same impact. It's just a matter of timing. And I've been arguing since a year ago that central banks should be looking through this. This has been debated for 50 years in central banking, and the standard rule of thumb is, you look through these types of price shocks. And that's what I think I'm arguing that's what we should do. And so if that's the case, start moving on cutting the policy rate.
LIESMAN: How could you be so confident Governor Waller, that a rise in prices from tariffs won't spill over into other prices and cause a broader inflation problem?
WALLER: Correct, and I think this is a valid concern of my colleagues often have about persistence increasing from this one time price effect. And as I said, if you go back over the last 50 years, this was always the concern that central banks had when there was an exchange rate shock, an oil shock, a shock to the value added tax. And the answer was, well, but the tariffs a one time thing, or whatever the shock is, but then workers will try to increase their wage demands to make up for the higher prices. And that was always the source of the second round effects. But I just don't see that happening. Now, I gave a speech in Korea a couple weeks ago where I laid out why I don't think this persistence will happen. Mainly, the labor market is okay, but it's not strong like it was in 2022. So if you were to walk in today and you think inflation is going to be 6 or 7% your employer is going to show you the door. They're not going to give you this huge wage increase to make up for tariffs that aren't even showing up yet. So I don't think that this wage mechanism is going to be around to cause these second round effects. And that's always the standard channel for generating persistence. I just don't think it's going to be there.
LIESMAN: Do you have concerns now for the labor market? We just talked about the Philly Fed being negative – employment. You've had this modest rise in jobless claims, and, of course, something of a step down, along with recent revisions downward to the employment levels. Do you have concerns for the job market?
WALLER: Yeah, I'm watching. I mean, it's solid. It's been kind of amazing. The unemployment rate has stayed right around 4.2 to 4.3 for a year, just hardly moving. But we are starting to see things like, if you look at the there was a story in The Wall Street Journal earlier this week that the unemployment rate for new graduates is at a 20 or 25 year high. College graduates are not finding jobs. Their unemployment rate is 7% and pre pandemic, it was 5. So it's that kind of data that's starting to make me a little worried. We're seeing job creation coming down. We're seeing a lot of things like you just said with the Philly Fed that are suggesting that maybe the labor market is starting to soften more than we might want it to. And so in my view, if you're starting to worry about the downside risk to the labor market, move now don't wait. People love to talk about long and variable lags. Why do we want to wait until we actually see it crash before we start cutting rates? So I'm all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting, because we don't want to wait until the job market tanks before we start cutting the policy rate.
LIESMAN: At the same time, what's your forecast for how tariffs affect the inflation rate? It looked like there was some impact from the tariffs in the May report. They were offset by other factors that seem to go negative. How much do you think tariffs will add to the CPI or the PCE, which you follow?
WALLER: Yeah. So, I mean, I think, Steve, you've said this many times, there's some things that are going to go up because the tariffs, but there's other things that are going to tend to offset it. That's why you can't just look at one category of goods and say, Oh, that's driving everything. And I think that's what surprised everybody in these last inflation reports. And I think that kind of thing will just continue. In terms of inflation, I've long argued that if you had a – if the effective tariff got down through negotiations to like, 1% -- 10%, 10% imports make up 10% of the price index. So a 10% tariff on 10% of the goods is only a 1% increase in the total price level, and that's if it's completely passed through. We already know that this is not being completely passed through. As Chair Powell was talking about, actually, in his press conference, everybody has to eat a little bit of the pain from the tariffs and so not all of this is going to get passed through. So you might see the price and level going up three tenths to half a percent, but that's it. It's not going to cause persistent inflation. And every model I've seen from private sector forecast rate everything shows by the middle to end of next year, the inflation rate comes right back down. It's a one time level effect.
LIESMAN: Chris, which is what I used to call you when you were the –
WALLER: You can call me Chris.
LIESMAN: Chris. Governor Waller. Chris, all right, whatever. So the President said in a tweet over the weekend that the Fed board is complicit in costing the U.S. government hundreds of billions of dollars by keeping rates too high. I want to know if you want to comment on what the President said, but also on this notion of whether the Fed – should it take into account the fiscal cost of servicing the debt by where it sets interest rate policy?
WALLER: Our mandate from Congress tells a story about unemployment and price stability, and that's what we're doing. It does not tell us to provide cheap financing to the U.S. government. That is really the job of Congress and the Treasury to make sure you have a fiscal situation that's sustainable, that will bring the deficits down and that will put downward pressure on interest rates all by itself. So that's the most important and most effective way to get deficit costs or financing costs down. It's not from what I can do with the short term overnight interest rate. That's not what's driving the cost for the financing the deficit. So one, it's not our job. Two, there are other means that you should be worried about getting that done, and we're kind of a distant third in terms of having any impact.
LIESMAN: Chris, Governor Waller, thank you for joining us this morning. We'll see you again soon.
WALLER: All right. Thanks, Steve.

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