Fed Officials Cautious About Impact of Tariffs on Monetary Policy
Executive Summary:
Amidst the latest tariffs imposed by President Trump, Federal Reserve (Fed) officials are advocating a "wait-and-see" approach before adjusting monetary policy. This stance stems from concerns that tariffs could exacerbate inflation, complicating the Fed's efforts to lower it to its target of 2%.
Key Points:
* Fed vice chair Philip Jefferson emphasizes the need for caution, stating that the Fed should "not be in a hurry" to alter its stance.
* San Francisco Fed president Mary Daly says the Fed should "not be preemptive" in lowering rates.
* Richmond Fed president Tom Barkin advocates for "waiting and seeing" before reacting to the tariff situation.
* Chicago Fed president Austan Goolsbee warns that persistent inflation caused by tariffs could pose a challenge for the Fed's monetary policy.
* Goolsbee notes that the impact of tariffs depends on the substitutability of products, the potential for an escalating trade war, and the extent to which suppliers absorb the higher costs.
* Fed officials acknowledge that uncertainty surrounding the economic outlook has increased since the end of 2024, making them reluctant to hastily adjust policy.
* San Francisco Fed president Daly believes the solid economic backdrop allows the Fed to have patience in lowering interest rates until inflation subsides.
Conclusion:
The Fed's cautious stance highlights concerns about the potential inflationary effects of tariffs. Officials are opting for a wait-and-see approach, monitoring economic data and assessing the impact of tariffs on inflation before making any monetary policy adjustments.