US Fed Governor Adriana Kugler: Trade tensions have eased, but tariffs will still have a significant impact

US Fed Governor Adriana Kugler said on Monday local time that the Trump administration's tariff policies could push up inflation and drag down economic growth, even after the easing of US-China trade tensions.

"Trade policy is evolving and could continue to change, even as recently as this morning. However, even if tariffs remain near the levels currently announced, they appear likely to have significant economic effects," Kugler said.

Earlier that day, the US and China issued a joint statement agreeing to temporarily modify and remove tariffs on each other's goods, with reciprocal tariff rates between the two countries set to fall to 10% within 90 days, driving major stock markets higher.

Even so, Kugler pointed out that the current average US tariff rate remains significantly higher than it has been in decades. "If tariffs remain much higher than they were earlier this year, the economic effects are likely to be similar, which would include higher inflation and slower economic growth," she added.

Last week, US Fed policymakers kept the benchmark interest rate unchanged for the third consecutive meeting. Kugler said she supported this decision, considering the upside risks to inflation and her view that the Fed's policy stance is somewhat restrictive for the US economy.

"As inflation and employment may move in opposite directions in the future, I will closely monitor developments when considering future policy paths. I believe our current monetary policy stance is already prepared for any changes in the macroeconomic environment," Kugler said.

Kugler said she expected tariffs to pose a negative supply shock, leading to weaker economic growth and consumer demand as prices rise.

She believed this could also have a "significant impact" on productivity, as companies might cut investments and take other less efficient measures in response to the situation, while a decline in overall economic demand could also make it harder for job seekers to find work. "A decline in aggregate demand could put downward pressure on inflation, but it may not be enough to offset the negative effects of the supply shock," she said.

Kugler described the US employment situation as "basically stable" and said progress in reducing inflation had slowed since last summer. She cited survey data such as the Fed's Beige Book and other indicators, noting that tariffs had already affected consumer and business behavior, sentiment, and expectations.

She added that the decline in US economic output in Q1 was due to a historic surge in imports, while domestic consumption continued to grow. However, she said the increase in domestic consumption may also have been influenced by households and businesses rushing to avoid tariffs, which could set the stage for a future decline in consumption.

A recent poll shows that in the first few months of President Trump's term, Americans were anxious about the economy and were reconsidering major life events such as marriage, having children, and buying a home.

The survey revealed that 60% of Americans said the economy had affected at least one of their major life goals, either due to a lack of affordability or anxiety about the current economic situation. Despite Trump's tariff policies being in place for only a few weeks and temporarily abandoning some of the most stringent measures, the survey results suggest that Trump's economic agenda may have long-term implications.