Fed Officials Maintain Cautious Approach Amidst Tariffs
Following President Donald Trump's announcement of tariffs on Mexico and Canada, Federal Reserve members have expressed a unified message of caution.
Wait-and-See Approach
Vice Chair Philip Jefferson stated that the Fed should "not be in a hurry to change our stance." San Francisco President Mary Daly emphasized the need to "not be preemptive." Richmond President Thomas Barkin highlighted the importance of "wait[ing] and see[ing]."
Inflation Concerns
Economists have raised concerns that the tariffs could exacerbate inflation, complicating the Fed's efforts to bring it back to the 2% target. Chicago President Austan Goolsbee emphasized that the distinction between inflation caused by overheating and inflation caused by tariffs will be crucial in guiding Fed policy.
Monetary Policy Stance
The Fed has held interest rates steady after three consecutive cuts last year. President Trump expressed support for this cautious approach, stating that it was the "right thing to do." However, concerns have emerged that the tariffs could derail any hopes of rate cuts in 2025.
Impact of Tariffs
Goolsbee warned that the potential impact of the tariffs could be larger and longer lasting compared to Trump's first trade war in 2018. The degree to which businesses can substitute products and diversify supply chains will influence the inflationary impact of the tariffs.
Other Perspectives
Vice Chair Jefferson emphasized the need for patience, with inflation expected to decline gradually and economic growth remaining solid. Atlanta President Raphael Bostic expressed caution due to increased uncertainty compared to the end of last year. San Francisco President Mary Daly stated that the Fed has time to observe economic developments before lowering interest rates.