Fed officials see inflation risks from tariff surge

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The Trump administration’s plans for trade tariffs come with inflation risks, three Federal Reserve officials warned on Monday, with one arguing that uncertainty over the outlook for prices calls for slower interest-rate cuts than otherwise.

Trump on Saturday slapped across-the-board tariffs on the three largest US trade partners, though by late Monday the leaders of Mexico and Canada had won a 30-day reprieve after they agreed to stepped-up efforts to stem drug trafficking. Tariffs on China are set to begin on Tuesday, and Trump has signaled he will impose duties on other trading partners as well.

“The kind of broad-based tariffs that were announced over the weekend, one would expect to have an impact on prices,” Boston Fed President Susan Collins said in an interview with CNBC, adding that “with broad-based tariffs, you actually would not only see increases in prices of final goods, but also a number of intermediate goods.”

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Little modern experience on how mega-tariffs impact the economy makes it hard for the Fed to know exactly how big or long-lasting the effects will be, she said, noting that it is possible the Fed could even shrug off a one-time increase in inflation tied to the tariffs.

Speaking later in the day on Marketplace Radio, Chicago Fed President Austan Goolsbee said that very lack of clarity requires a go-slower approach on interest-rate cuts.

“Now we’ve got to be a little more careful and more prudent of how fast rates could come down because there are risks that inflation is about to start kicking back up again,” Goolsbee said.

He did not repeat his recent mantra, voiced as recently as last week, that rates will need to come down a fair bit over the next year, given progress on bringing down inflation and the goal of keeping the economy at full employment.

Earlier in the day, Atlanta Fed President Raphael Bostic warned his business contacts were planning to pass through any rising costs from the tariffs.

“The ultimate question about whether that is significantly inflationary depends on exactly how it plays out,” as there are scenarios where the Fed may be able to shrug off these increases and ones where it might not be able to. “To the extent that were to impact things like inflation expectations then you’d have to,” Bostic told reporters after a speech.

Analysts at the Peterson Institute for International Economics said on Monday that the full suite of tariffs on the three nations, if implemented, will cost the typical American household an additional $1,200 a year.

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