Fed Officials Remain Focused On Possibility Tariffs Will Spur Inflation

• Federal Reserve officials speaking Friday emphasized the risks that tariffs imposed by the Trump administration will stoke inflation.
  

• The Fed, which manages the nation’s monetary policy with the goal of keeping inflation and unemployment in check, may find itself in a bind if it has to choose between lowering interest rates to boost the economy against a tariff-induced slowdown, or keeping them high to control inflation.
  

• One policymaker defended the central bank’s independence from political pressure, days after President Donald Trump reiterated his criticisms of Fed Chair Powell for not cutting interest rates.
  

If you’re waiting for the Federal Reserve to lower borrowing costs, don’t hold your breath. Out of the multiple Federal Reserve officials who spoke Friday, none sounded in a big hurry to cut the central bank’s benchmark interest rate.

In speeches and interviews, Fed officials gave their take on how the economy is holding up under President Donald Trump’s campaign of tariffs, and how the central bank is likely to respond. Although Trump has demanded lower interest rates, which would boost the economy, the central bank has so far resisted, holding rates steady out of concern that lower rates would stoke inflation.

Fed officials pushed back against both the idea of lowering rates soon, and the idea that the independent central bank should take direction from elected officials. Economists predict Trump’s tariffs, which mainly took effect in April, will push up consumer prices and discourage job growth the longer they stay in effect, potentially damaging both sides of the Fed’s dual mission to keep inflation in check and employment high.

As of Friday, financial markets were pricing in a probability that the Fed would lower its benchmark interest rate in July, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. However, the outlook for the economy, and interest rates, are more uncertain than usual—no one knows for sure how the modern economy and its vastly complex supply chains will react to the highest tariffs in generations.

John C. Williams, president of the Federal Reserve Bank of New York, emphasized the importance of the price stability side of the Fed’s “dual mandate” Friday in an interview on Bloomberg Television.

“One thing we’ve learned from history is that having well-anchored inflation expectations, having the public have confidence that regardless of whatever’s happening today that inflation will come back to 2% and that we’ll make sure that happens, is very important for price stability,” Williams said. “It actually helps reinforce our ability to achieve both of our goals.”

Fed officials and many economists closely watch surveys of consumer expectations for how much prices will rise in the future, in the belief that inflation expectations can be a self-fulfilling prophecy: people could rush to buy things before prices rise. That could create a rush of demand that would allow businesses to raise prices.

Fed governor Adriana Kugler also put inflation concerns first and foremost when explaining why the Federal Open Market Committee, the bank’s policymaking group, had chosen to keep interest rates flat, at an elevated rate, in its meeting last week, speaking in a separate interview with Bloomberg. Kugler said the progress against inflation had been slowing down before the tariffs shook up the outlook, and echoed Williams’s concerns about keeping the public’s expectations of inflation in check.

“We see some upside risks to inflation from the tariffs that are currently in place, and given that, it makes sense to make sure we keep the federal funds rate moderately restrictive,” she said.

Kugler noted that so far, the job market has stayed resilient, so she saw little need to lower rates to boost employment.

Federal Reserve governor Michael S. Barr said it was unclear whether the tariffs would do more damage on the inflation or the employment front, so he favored waiting and seeing which emerged as the bigger threat.