NEW YORK — Federal Reserve officials on Tuesday argued again for caution on monetary policy as President Donald Trump’s trade war continues to inject substantial amounts of uncertainty and the risk of economic weakness into the outlook.
“I continue to believe the best approach for monetary policy is patience,” Atlanta Fed President Raphael Bostic said in an essay released by his regional Fed bank. In a “broadly healthy” economy “we have space to wait and see how the heightened uncertainty affects employment and prices … I am in no hurry to adjust our policy stance,” he said.
Speaking separately at an event in New York, Fed Governor Lisa Cook saidUS monetary policy is in a good place to respond to different economic scenarios.
The US economy is in a “solid position” amid heightened uncertainty, Cook told a gathering at the Council on Foreign Relations.
“There is evidence that changes to trade policy are starting to affect the economy” and “I anticipate a slowdown in the expansion of economic activity from last year’s pace,” Cook said. She tied trade policy to drops in manufacturing output and some types of orders for big-ticket factory goods, as well as a pullback in investment as firms navigate the uncertainty.
Cook said “the current stance of monetary policy is well positioned to respond to a range of potential developments” in terms of interest rates. She added that all options are on the table for the Fed if needed and that “we have to be open to all possibilities” such as cutting, holding or raising rates.
“We don’t know how tariffs are going to play out, so all of those (rate policy) scenarios could be possible,” Cook said.
Speaking to reporters in a conference call, Bostic said the one rate cut he penciled in for 2025 as part of the quarterly forecasts released by the Fed in March could happen. “I still think there’s space for that, and a lot of it will depend on how the uncertainty resolves itself,” he said.
But Bostic also noted inflation is still above the Fed’s 2 percent target and underlying prices are higher than he’d like, adding that even if tariffs weren’t roiling the outlook, it would be a “tough call” to say that rate cuts are warranted right now.
The Fed is expected to hold its benchmark interest rate steady in the 4.25 percent-4.50 percent range at its next policy meeting on June 17-18. Many economists as well as Fed officials believe inflation and unemployment are likely to rise and growth to slow due to Trump’s import tax agenda.
The big debate among central bankers is whether tariffs will drive a one-time price increase or create the grounds for something more persistent. Officials like Fed Governor Christopher Waller, who spoke on Sunday, lean toward expecting a one-time hit the US central bank can likely look through, while arguing it remains possible it can be cutting rates before the end of the year.
