US Fed Official: Tariff Impact Exceeds Expectations, Tendency to Cut Interest Rate Only Once This Year

On Monday (May 19) local time, Atlanta Fed President Bostic said that, in the current context where the US Fed is attempting to balance upward inflationary pressures with the risk of economic recession, he favors only one interest rate cut this year.

Since December last year, the US Fed has maintained the target range for the federal funds rate at 4.25% to 4.50%. At the May interest rate meeting, policymakers held steady for the third consecutive time, with Fed Chairman Powell emphasizing that there would be no rush to cut interest rates.

In its forecast released in March, the US Fed had projected two 25-basis-point interest rate cuts in 2025.

However, Bostic pointed out that the impact of the Trump administration's tariff policies has exceeded the US Fed's expectations.

"For now, I expect it will take longer for the situation to clarify... so I am now more inclined to only cut interest rates once this year, as I believe it will take time, and then we will see what happens next," Bostic said.

The US Fed's dual mandate is to ensure maximum employment and price stability simultaneously. A consumer confidence survey released last week showed that Americans are concerned that tariffs may push up inflation, with worries about inflation heating up again.

When asked which aspect of the US Fed's dual objectives he is currently more concerned about, Bostic highlighted the risks of upward price movements.

He said, "I am very concerned about inflation, mainly because we are seeing people's inflation expectations moving in a troubling direction... this will make our job even harder."

It should be noted that Bostic is not currently a voting member of the Federal Open Market Committee (FOMC), which is responsible for setting US interest rate policy.

Since Trump's return to the White House in January, there have been several changes to the US tariff policy. On April 2, Trump announced a tariff hike on nearly all trading partners, followed by a 90-day suspension measure, temporarily setting tariffs for most countries at 10%.

A 90-day temporary trade "truce" agreement was also reached between China and the US, but current tariff levels remain higher than before Trump took office.

Bostic said that even the reduced tariffs still have a significant economic impact.

Bostic also pointed out that the decision by rating agency Moody's to downgrade the US credit rating last Friday may have a negative impact on American households and businesses seeking to borrow.

"This downgrade will have an impact on the cost of capital and a range of other factors, potentially triggering a chain reaction throughout the economy," he said.