US Fed Voting Member: Monetary Policy Has Been Disrupted by Tariffs, and the US Central Bank Is Forced to Stand Pat in the Short Term

Austan Goolsbee, President of the Federal Reserve Bank of Chicago, recently stated that Trump's latest tariff threats would complicate monetary policy and potentially delay the US Fed's interest rate adjustments.

On Friday (May 23) local time, Goolsbee pointed out in a media interview that although he still believes interest rates will continue to decline, the central bank may choose to remain on the sidelines in the short term to assess the evolving trade policies and their impact on inflation and employment.

"Everything is on the table. But I feel that the threshold for taking any action is higher until the situation becomes clearer. In the long run, if the tariffs they impose lead to stagflationary effects... that would be the worst-case scenario for the central bank."

Goolsbee added, "So we have to see how much of an impact there will be on prices. I know people hate inflation."

Goolsbee's remarks came as Trump once again shook the markets. The US President stated on social media platforms that "if iPhones are not made in the US, Apple will have to pay a 25% tariff" and "suggested imposing a 50% tariff on the EU starting June 1."

Goolsbee said that before Trump announced reciprocal tariffs on April 2, triggering market turmoil, he was optimistic that "in the long run, the economy would move towards steady growth."

"I still hold out hope that we can return to that environment. Over the next 10 to 16 months, interest rates could be significantly lower than they are now."

Goolsbee is a voting member of the Federal Open Market Committee (FOMC) of the US Fed this year. The next interest rate-setting meeting is scheduled for June 17-18, when officials will update their economic and interest rate forecasts. In its March forecast, the FOMC hinted at two interest rate cuts this year.

Currently, the market also widely expects the US Fed to cut interest rates twice this year, but the earliest action would not come until September. Goolsbee said, "I am reluctant to tie my hands even slightly at the next meeting, let alone the next six, eight, or ten meetings."

"That said, before April 2, I thought we were in a fairly stable state of full employment, with inflation returning to the 2% track. If that trend can be maintained, I believe there will be significant downside room for interest rates over the next 12 to 18 months."