A top Federal Reserve official, Richmond Fed president Tom Barkin, has expressed concerns about the ongoing trade war, warning that it may lead to fewer jobs and higher prices. While companies are determined to pass along higher tariff costs by way of higher prices, consumers are exhausted by high inflation and may resist.
Barkin notes that businesses are struggling with confidence in the uncertain future, and this uncertainty is likely to slow economic activity. He describes a push-and-pull over who will absorb the cost of tariffs, with companies facing resistance from consumers.
The risks to both sides of the Fed’s mandate – for maximum employment and stable prices – set up a dilemma for policymakers. Cutting rates to address joblessness may make things worse on the other side, allowing higher inflation. Barkin was noncommittal on where policy might shake out, citing the need for conviction in controlling one aspect of the mandate.
Barkin also warns that consumer spending holds the key to understanding the economy’s resilience. While government spending and business investment are expected to fall, consumer spending has been supported by low unemployment, increasing real wages, and increasing wealth.
The plunge in the stock market may cause Americans to pull back on spending, but it’s unclear if this will happen. Barkin notes that history shows that markets crashes don’t always lead to reduced spending. He also highlights disinflationary forces, such as declining energy prices and retaliation by China on export manufacturing.
Ultimately, Barkin believes that the imposition of tariffs at this scale will hit both inflation and employment, making it a complex challenge for policymakers.
Source: https://www.axios.com/2025/04/09/trump-tariff-price-increases-fed