US Federal Reserve officials have expressed caution about the impact of President Donald Trump’s policies on interest rates, citing uncertainty surrounding tariffs and other issues. The Fed left its benchmark interest rate unchanged last week but is considering whether to resume cuts later this year.
Chicago Fed President Austan Goolsbee warned that ignoring the potential inflationary impact of tariffs would be a mistake. Richmond Fed President Thomas Barkin said it’s impossible to know how cost increases from any tariffs will be absorbed or passed on to consumers at this early stage.
The US economy is strong, with a labor market “plausibly” at full employment and inflation approaching the Fed’s 2% goal. However, new challenges have emerged due to natural disasters, geopolitical disruptions, immigration, and the threat of large tariffs. If inflation rises or progress stalls in 2025, the Fed will need to determine whether it’s coming from overheating or tariffs.
Goolsbee noted that tariffs could impact inflation in other ways, such as affecting suppliers’ margins and potentially leading to supplier bankruptcies. The uncertainty surrounding tariffs’ impact makes it difficult for the Fed to decide on interest rate cuts.
The Trump administration announced additional tariffs on imports from Mexico and China, which have sparked concerns about their potential impact on the economy. The Fed will need to carefully consider these factors when making its decisions on monetary policy.
Source: https://www.reuters.com/world/us/fed-leaning-toward-more-rate-cuts-amid-uncertainty-barkin-says-2025-02-05