US Fed officials warned that tariffs are increasing inflation risks, and the impact may exceed theoretical expectations.

On Thursday Eastern Time, Jeff Schmid, President of the Federal Reserve Bank of Kansas City, stated that he would continue to "fully focus" on inflation issues and the risks that new US tariffs could drive up prices and elevate public inflation expectations.

"I intend to closely monitor the inflation outlook," Schmid said, noting that the US Fed is increasingly likely to need to balance inflation concerns with risks to the job market and economic growth.

He stated:

"We seem to be seeing a significant increase in upside risks around inflation, while downside risks to employment and economic growth prospects are also rising... Given the potential re-emergence of price pressures, I am unwilling to take any risks in maintaining the Fed's credibility on inflation."

Regarding the impact of Trump's tariffs on US inflation, Schmid noted that while tariffs might theoretically only have a one-time effect on commodity prices without a more lasting impact on inflation, considering that the US has just emerged from the highest inflation in nearly 40 years and Trump is set to raise tariffs to historically high levels in international trade, the future trend of US inflation could exceed theoretical expectations.

"In this environment, I am not very willing to take much comfort from theory," Schmid said. "Given the recent high inflation experience, I am concerned that further price increases could further elevate inflation expectations."

Schmid was one of the first Fed officials to speak publicly after Trump announced on Wednesday the suspension of reciprocal tariffs on most countries.

Although Trump's statement once prompted a significant rebound in US stock prices on Wednesday, the high tariffs on China remain in place, and market concerns about the US trade outlook have not dissipated.

Trump's erratic use of the "tariff stick" has also prompted Fed officials to begin revising their views on the US outlook, making it more difficult to balance the two Fed goals of "stabilizing inflation" and "reducing unemployment."