US Fed's Goolsbee: Tariff impact is smaller than expected, and interest rate cuts may continue

On Monday local time, Chicago Fed President Austan Goolsbee said that so far, the economic impact of Trump's tariff hikes has been milder than expected, and interest rate cuts may resume.

Goolsbee claimed that since Trump imposed tariffs on April 2, there has been a lack of significant inflationary pressure, which might allow the US Fed to resume interest rate cuts, a somewhat surprising development.

He recalled that the Fed had expected to lower interest rates earlier in the year but paused the move, primarily due to policy uncertainties.

Although it remains uncertain how the tariffs will affect price pressures, he stated, "If we don't see inflation resulting from these tariff hikes, then in my view, we never left what I called the golden path before April 2."

He compared the tariffs to "throwing a lot of dust into the air, making it hard to see if you're still on the path." "If there's no dust in the air, then I think we should proceed with interest rate cuts."

Last week, the US Fed continued to maintain its policy interest rate within the range of 4.25% to 4.5%, while leaving the door open for interest rate cuts in the second half of the year, but also hinted at no urgency to do so.

The dot plot showed that among the 19 participants, 10 expected the Fed to cut interest rates at least twice this year, still a majority but fewer than in March, with 2 expecting one cut.

Fed officials want to see more of the economic impact of Trump's tariffs, such as on prices, and with the US launching an attack on Iran's nuclear facilities, this has added new risks to the global economy.

Goolsbee said that in some industries, there has been a "pass-through of costs," with the tariff costs being shared among suppliers, producers, and consumers. "What we're trying to figure out is: Is this all there is, or are we about to see some new developments in the inflation data?"

Earlier that day, the Fed's new Vice Chair for Supervision, Michelle Bowman, also said that if inflationary pressures remain manageable, she supports lowering the policy interest rate as early as the next meeting to bring it closer to a neutral level and maintain a healthy labour market.

In addition, Fed Governor Christopher Waller said on Friday that he expects tariffs will not significantly drive up inflation, so policymakers should consider lowering interest rates as early as July. "I think we're in a position to act, possibly as early as July. That's my personal view. Whether the rest of the committee agrees is another matter."