US Fed Voter Criticizes Trump's Policies: Tariffs Bring "Stagflationary Shock"!

Recently, US President Trump's tariff policies have sparked concerns about a US economic recession and caused significant turbulence in global financial markets.

On Thursday local time, Chicago Fed Chairman and 2025 FOMC voting member Goolsbee issued unusually harsh criticism of Trump's policies. He described tariffs as a "stagflationary shock" and suggested that this could challenge the US Fed's ability to respond.

"Tariffs are like a negative supply shock. It is a stagflationary shock," Goolsbee said during a fireside chat at the Economic Club of New York. "There is no universal template for how central banks should respond to stagflationary shocks."

Stagflation refers to an economic environment of "slowing growth accompanied by high inflation," which poses a dangerous situation for the US Fed as it lacks the tools to address both issues simultaneously.

Goolsbee, who served as a senior economic advisor to former US President Obama, made these remarks particularly noteworthy because Fed officials typically avoid publicly commenting on presidential decisions.

On Wednesday, Trump announced that the US would suspend high "reciprocal tariffs" on dozens of countries for 90 days, but the 10% base tariffs would remain in effect.

Goolsbee pointed out that the new tariff regime is much stronger than what Chicago Fed economists had anticipated .

Despite the current stability of the US economy

, Goolsbee stated that the "hard data" on inflation and unemployment indicate that the US economy is currently in a stable state .

Currently, the US unemployment rate remains near 4%, close to historic lows. Data released by the Labor Department on Thursday showed that US CPI inflation fell to 2.4% in March this year. The Trump administration views this as a sign that prices are declining.

Goolsbee noted that the current situation is far from the unemployment and price surges that caused the stagflation crisis in the mid-1970s and early 1980s.

Nevertheless, he stated that slowing economic growth, high prices, and growing concerns about a resurgence of price surges and supply disruptions similar to those during the pandemic collectively form a "triangle of uncertainty" .

He said that businesses in his region—including a significant number of domestic automakers—"are fundamentally worried that we might return to a stage where inflation truly spirals out of control." He added that he is closely monitoring surveys of consumers and businesses, as well as long-term inflation expectations in the market.

Emphasizing the Importance of Fed Independence

Goolsbee also emphasized that the US Fed's ability to mitigate future unemployment or inflation spikes will depend on its independence from elected officials .

Trump has stated that he believes he has the right to participate in monetary policy decisions and considered firing Fed Chairman Powell during his first presidential term because the Fed was raising interest rates at the time. However, Powell has stated that US law does not grant the president the authority to fire the Fed Chairman.

"Sometimes the Fed has to do tough work," Goolsbee said. "That's why they established a system of monetary independence. If the Fed's operations are subject to political interference, moments like those during the Volcker era (dealing with high inflation and other challenging situations) would become much more difficult."