In stark contrast to Powell's clear stance, Federal Reserve officials: Ignoring tariffs would be a mistake
Austan Goolsbee, President of the Federal Reserve Bank of Chicago, warned that it is "dangerous" for the Federal Reserve to follow "pure economic theory" while ignoring supply shocks such as tariffs. The "overwhelming" lesson from the pandemic is that Federal Reserve officials should not overlook supply-side shocks, which have been the most important drivers of inflation over the past five years
Federal Reserve officials warn that underestimating the impact of Trump's tariffs is a mistake.
On Wednesday local time, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, warned that underestimating the potential impact of Trump's planned tariffs would be a "mistake," and that it is "dangerous" for the Federal Reserve to follow "pure economic theory" while ignoring supply shocks such as tariffs.
Goolsbee emphasized that the U.S. is currently facing a series of supply chain challenges, including strikes, natural disasters, and "massive tariff threats and potential escalation of trade frictions." The "overwhelming" lesson from the pandemic is that Federal Reserve officials should not ignore supply-side shocks, which have been the most important drivers of inflation over the past five years.
Goolsbee stated in his speech:
"While the scale of these threats is not as great as during the pandemic, ignoring their potential consequences would be a mistake."
As a member of the Federal Open Market Committee (FOMC), Goolsbee's remarks stand in stark contrast to the cautious stance of Federal Reserve Chairman Jerome Powell last week—Powell previously stated that policymakers need to "wait and see" the impact of tariffs before deciding how to influence interest rate decisions.
Previously, Trump threatened to impose a 25% tariff on the U.S.'s two largest trading partners, Mexico and Canada, and on Monday afternoon, Trump announced a 30-day delay in the imposition of tariffs.
Currently, most private economists expect that the tariff plan implemented by Trump will drive up inflation. Since last fall, market expectations for the Federal Reserve to cut interest rates this year have significantly decreased, as the pace of price growth remains above the central bank's target.
In addition, Trump also stated that he would communicate regularly with Powell, hoping for a "significant" decrease in U.S. borrowing costs; however, U.S. Treasury Secretary Janet Yellen denied that Trump is pressuring the Federal Reserve