Chicago Federal Reserve President Austan Ghoolsby said on Friday that President Donald Trump’s latest tariff threats are complex policies and likely to postpone interest rate changes.
In an interview with CNBC, central bank officials showed that although they still think the rate direction is low, the Fed is likely to be put on hold as they assess the ever-changing trade policy and how it affects inflation and employment.
“It’s all on the table all the time, but for me, while waiting for some degree of clarity, I feel a little high for action in all directions,” Ghoulsby said in “Scokebox” when asked about Trump’s new actions Friday morning. “In the long run, if they’re introducing tariffs that affect male dogs, that’s the worst situation for the central bank.”
“So I think we have to see how big the price impact is,” he added. “I know people hate inflation.”
Goolsbee said Trump has once again shaken the market and is seeking 50% tariffs on European Union products from June 1, but it shows that Apple will need to pay 25% tariffs on iPhones that are not made in the US.
The costly iPhone impact would not make much sense from a larger economic standpoint, but Saber-Ratting highlights the volatility of trade policy and provides another flashpoint for a market that has already been unsettled by concerns about fiscal policy that have significantly increased bond yields.
Central bankers generally take care not to fall into fiscal and trade policy issues, but are left to analyse their impact.
Goolsbee said he was still optimistic that the long-term trajectory was leaning towards solid economic growth ahead of the April 2 tariff announcement when Trump rattled the market.
“I still hope to be able to get back to that environment. In 10-16 months from now, the rates could be significantly lower than today’s location,” he said.
Goolsbee is a voting member of the Rate Setting Federal Open Market Committee this year, which will then take place June 17-18. At the meeting, authorities will have the opportunity to update their economic and interest rate forecasts. In the last update, in the March update, the committee showed two interest rate cuts this year.
The market expects the Fed to cut twice this year, with the next move not coming until September. Ghoolsby has not taken a series of actions from here amidst uncertainty.
“I don’t like to gently tie my hands at my next meeting, well beyond the next six, eight or ten meetings,” he said. “That being said, when we entered April 2nd, we were pretty stable and full employment, with inflation on the road back to 2%, and I think we thought prices would drop significantly over the next 12-18 months.”
The Fed’s benchmark overnight borrowing rate is covered between 4.25% and 4.5%, the first since December. The actual rate has recently been traded at 4.33%.
