Federal Reserve officials warn: Trump's tariffs increase inflation and economic uncertainty, making it difficult to determine the interest rate path

According to the Zhitong Finance APP, Neel Kashkari, President of the Minneapolis Federal Reserve Bank, stated on Tuesday that it is still too early to judge how the tariff policies promoted by President Trump will affect inflation and the economy, as well as whether adjustments to the federal funds rate path are necessary.

He pointed out at the U.S. Chamber of Commerce Global Summit that while theoretically tariffs alone are insufficient to reignite inflation, the Federal Reserve cannot ignore this risk in the current high-inflation context, and must also consider the potential dampening effect of tariffs on economic growth. He stated, "This creates a tense situation for the Federal Reserve, as we cannot simultaneously address rising inflation and rising unemployment."

Kashkari added that the uncertainty of U.S. trade policy has also exacerbated the instability of the economic environment. He noted that if trade negotiations make progress, this uncertainty could be quickly alleviated, but the current unresolved situation is suppressing consumption and investment willingness among businesses and households, further dragging down economic growth. He admitted, "I have never seen this level of anxiety; it has not been seen since the outbreak of the COVID-19 pandemic."

Despite Trump's repeated pressure on Federal Reserve Chairman Jerome Powell to cut interest rates, Kashkari firmly stated that the independence of the Federal Reserve's monetary policy is the foundation of the success of the U.S. economy. He refuted criticisms from Trump and some members of his administration regarding the Federal Reserve's "politically motivated" policy-making.

Kashkari reviewed the changes in his policy stance during the terms of three different presidents: supporting accommodative policies during Obama's presidency, maintaining an accommodative stance during Trump's term, and shifting to a hawkish position during Biden's term. He said, "My transition from dovish to hawkish to moderate is not due to politics, but because the economic environment and data have changed."

It is worth mentioning that Kashkari ran for California governor as a Republican and held key positions during the Bush administration, participating in responses to the global financial crisis. He stated that Powell has always adhered to the core goals of "price stability and full employment," guiding the Federal Reserve's rate-setting committee away from political interference.

Kashkari also mentioned that the recent rise in U.S. Treasury yields and the weakening of the dollar could further pressure the economy. He warned that if global investors lose confidence in the U.S. and reduce their investments in America, it would raise domestic financing costs, increase borrowing rates, and even affect the dollar's status as a global reserve currency.

"If we are no longer recognized as the most competitive economy in the world, we won't have much room to maneuver," he said. "I hope the U.S. continues to maintain its leading position in the global economy and that the dollar retains its dominant status as an international currency."

Meanwhile, Patrick Harker, President of the Philadelphia Federal Reserve Bank, also emphasized at a conference on economic liquidity that the Federal Reserve's "most valuable asset" is its credibility. "What we do and say is not decided on a whim, but is based on solid evidence."

In response to Trump's questioning of the Federal Reserve's independence, Harker stated that while the Federal Reserve is not perfect, it always strives for objectivity, transparency, and data-driven decisions. "Through non-political and independent actions, we have built market trust step by step." Harker, who has only three months left in his term, jokingly stated that he can now speak more freely. He pointed out that the Federal Reserve's responsibility is not to directly drive economic growth, but to create a macro environment conducive to growth. "To put it simply, what we provide is 'hope' in the economy. Once that hope is lost, everything will start to decline."

After the proposal of the "Liberation Day" tariff policy, there are concerns that its consequences will fall more heavily on low-income families, as these groups rely more on low-margin imported goods and have a weaker ability to combat rising prices.

Federal Reserve Vice Chairman Philip Jefferson also emphasized in another speech on the same day that the Federal Reserve considers the impact on low-income groups when formulating monetary policy. He pointed out that achieving the dual goals of price stability and maximum employment will provide "opportunities for upward mobility" for everyone, especially those at the bottom of the socioeconomic ladder.

Jefferson stated that long-term, non-inflationary economic expansion helps narrow the employment and income gap, benefiting low-wage workers and those with lower education levels the most. He also noted that a society with higher economic mobility will make the transmission of monetary policy more efficient. "When people believe they have the opportunity for upward mobility, they are more willing to participate in the labor market and invest in their own skills."

His remarks come as Powell had previously warned that Trump's tariff plan could lead to an unfavorable combination of "slowing economic growth and rising inflation," which is precisely the "economic opportunity" risk that Jefferson is concerned about