Chicago Fed President issues warning that Trump's tariff threats may delay interest rate cut timeline

According to the Zhitong Finance APP, Charles Evans, the president of the Federal Reserve Bank of Chicago, stated on Friday that President Trump's latest proposed tariff threats have made the Federal Reserve's monetary policy more complicated and may also delay the timeline for interest rate cuts.

In an interview, Evans pointed out that although he still believes the future direction of interest rates will be downward, in the context of ongoing changes in trade policy, the Federal Reserve may need to hold off and wait for clearer signals to assess the impact of tariff policies on inflation and employment.

"All options are on the table for discussion. But I personally think that in the current state of uncertainty, the standards for taking any action should be higher," Evans said. "If, in the long run, the tariff policy has a stagflation effect (i.e., stagnation combined with inflation), then this would be the situation that the central bank is least willing to face."

He added, "We need to observe how significant the impact of these policies is on prices. I know the public really dislikes inflation."

On the day Evans spoke, Trump once again disturbed the market by announcing plans to impose a 50% tariff on EU goods starting June 1 and stated that Apple (AAPL.US) would face a 25% import tariff if it moved iPhone production outside the United States. Apple currently produces iPhones mainly in China and has some production lines in India.

Although the impact of rising iPhone prices on the overall economy may be limited, Trump's remarks once again highlighted the high uncertainty of current trade policies, exacerbating market anxiety. Recently, investors had already driven bond yields significantly higher due to concerns about fiscal policy prospects.

Federal Reserve officials typically avoid directly commenting on fiscal or trade policies but must assess their economic consequences. Evans stated that before Trump announced the tariff increase on April 2, he remained optimistic about the U.S. economic growth outlook. "I still have a bit of hope that we can return to the kind of environment we had before, in which case, 10 to 16 months later, interest rates could be significantly lower than current levels."

As a voting member of the Federal Open Market Committee in 2025, Evans will participate in interest rate decisions at the policy meeting on June 17-18. At that time, the Federal Reserve will update its economic and interest rate forecasts. The last forecast in March indicated that Federal Reserve officials expected two interest rate cuts this year.

The market generally expects the Federal Reserve to cut interest rates twice in 2025, with the earliest action possibly waiting until September. However, Evans did not commit to a specific path.

"I don't like to 'tie my hands' even slightly at the next meeting or in the next six to ten meetings," he said. "That is to say, before entering April 2, I believe we were in a relatively stable full employment state, with inflation trending back to 2%. If these trends continue, interest rates could see a significant decline in the next 12 to 18 months."

Currently, the Federal Reserve's target range for the benchmark federal funds rate is 4.25%-4.5%, unchanged since December 2024, with the most recent trading level for the effective rate at 4.33%