President Donald Trump's tariffs will likely increase inflation and could also drive up unemployment, Federal Reserve Governor Michael Barr said on Thursday in remarks that signaled that he - like most of his Fed colleagues - wants to wait for more clarity before making any interest-rate cuts.
"Low-income households can ill afford increases in prices, and that's why it is so important that we bring inflation back down to our target," Barr said at a community development event at the Cleveland Fed.
The Fed targets 2% inflation, and while the latest read by the Fed's targeted measure was 2.1%, professional forecasters expect a government report due on Friday to show that ticked up in May, with more expected in coming months as businesses pass tariff-driven cost increases on to consumers.
Barr said he expects tariffs to put upward pressure on inflation. Households expect inflation to rise sharply in the near-term, surveys show; Barr said this along with supply chain adjustments and second-round effects could cause "some inflation persistence."
"At the same time, tariffs may cause the economy to slow and unemployment to rise," he said, with low-income workers often the hardest hit when the job market weakens. The unemployment rate is 4.2%, and though layoffs have been low, hiring has also been sluggish. That means, Fed Chair Jerome Powell said this week, that if companies do start to let workers go the unemployment rate could rise quickly.
"There is still considerable uncertainty about tariff policies and their effects," Barr said. "Monetary policy is well positioned to allow us to wait and see how economic conditions unfold."
Barr last week joined in a unanimous decision at the Fed to keep short-term borrowing costs in the 4.25%-4.50% range where they have been since December.
Fed projections suggest many policymakers want to cut rates a couple of times this year, a path that points to a September start to that process once the Fed has data in hand on how the job market and inflation fare over the summer.
Source: Investing.com
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