Tariffs drive up product prices! Federal Reserve's Kashkari warns of inflationary pressures, Bostic supports a slight rate cut within the year

As the Federal Reserve's September policy meeting approaches, several officials have expressed their views on inflation, tariffs, and interest rate prospects, revealing internal divisions and uncertainties regarding policy.

According to the Zhitong Finance APP, Minneapolis Fed President Neel Kashkari stated on Thursday that the tariff measures pushed by President Trump are driving up goods inflation, complicating the Fed's path to achieving its 2% inflation target. He mentioned at a women's economic roundtable in Minnesota that although the labor market is showing signs of cooling, the overall economy is still expected to achieve a "soft landing," but current inflation levels remain "too high."

Kashkari pointed out that price growth in areas such as housing is slowing down, but this does not mean that home prices or rents are declining in absolute terms. "This means that the rate of increase in rents and home prices is slowing down, which is in line with our expectations." However, this has also led to a "flat" overall average inflation, putting the Fed in a "delicate position" between stabilizing prices and maintaining full employment.

He stated, "I have every reason to believe that the cooling trend we are seeing may continue." At the same time, he does not believe the U.S. economy will fall into recession and expects that there is still room for gradual rate cuts in the coming years. "I am confident that the Fed will be able to control inflationary pressures."

Atlanta Fed President Raphael Bostic reiterated in an article on Wednesday that he believes a modest rate cut of 25 basis points this year is appropriate, but it depends on the developments in inflation and the labor market over the next few months.

"While price stability remains the top priority, the degree of slowdown in the labor market is sufficient to support a moderate policy easing later this year," Bostic stated, adding that he does not rule out taking action early if the data significantly worsens.

When asked in an interview whether a rate cut might be possible in September, he said, "I will keep an open mind" and will closely monitor indicators such as wage growth and non-farm payrolls. "If the data indicates that the labor market is weakening rapidly and significantly, that will be very important information that will affect my judgment on policy."

Bostic also warned that the impact of tariffs on inflation may be persistent. "I believe the impact of tariffs on consumer prices will not dissipate quickly, and their full effect will only become apparent in the coming months." He emphasized that the Fed cannot be complacent and must prevent inflation expectations from spiraling out of control to avoid a new round of inflation.

The Fed has kept the benchmark interest rate unchanged since December last year, mainly concerned that Trump's tariff policy could reignite inflation. However, as monthly job growth has significantly slowed, some officials believe that measures need to be taken to support the labor market in the face of unclear inflation prospects.

The market generally expects the Fed to cut rates for the first time this year at its policy meeting in two weeks. The Atlanta Fed's view leans towards a modest rate cut this year, while Fed Governor Christopher Waller stated on Wednesday that he supports starting rate cuts this month and may implement multiple cuts in the coming months, but without a fixed pace.

Bostic believes that the current level of interest rates is still "somewhat restrictive." As the labor market cools, the risks to the two goals of prices and employment are becoming more balanced. However, he emphasized that there is no clear evidence that the labor market has severely deteriorated. The unemployment rate remains relatively stable, while labor supply is decreasing, which means that the number of new jobs needed to maintain a stable unemployment rate is decreasingThe Federal Reserve will receive the August non-farm payroll report this Friday, and the latest Consumer Price Index (CPI) will be released next week. These two pieces of data will provide key references for policy-making.

When asked about Trump's attempt to remove Federal Reserve Governor Cook over mortgage fraud allegations, Bostic declined to comment, stating only that the case is under investigation and that the process needs to proceed. He expressed hope that future new governors will be data-driven and focused on the mission of supporting economic development.

Analysts point out that the market has largely priced in a 25 basis point rate cut in September. However, there are still significant internal divisions within the Federal Reserve regarding the pace of rate cuts, with some officials advocating for swift action to prevent a deterioration in the labor market, while others are concerned about the resurgence of inflationary pressures due to tariffs. This means that the employment and inflation data released in the coming weeks will directly determine the direction of the Federal Reserve's policy decisions in September