Federal Reserve Bank of Minneapolis President Neel Kashkari on Tuesday called for keeping interest rates steady until there is more clarity on how higher tariffs affect inflation, warning against “looking through” the impact of such supply price shocks.
The shock to the economy from President Donald Trump’s sweeping tariffs, and uncertainty over U.S. trade policy, are forcing central banks to decide whether to focus on fighting inflation or supporting economic activity, he said.
With U.S. inflation having well exceeded the Fed’s 2% target for four years, there were concerns as to how long long-run inflation expectations can avoid de-anchoring, he said.
“These arguments support a stance of maintaining the policy rate, which is likely only modestly restrictive now, until there is more clarity on the path for tariffs and their impact on prices and economic activity,” Kashkari said.
“Personally, I find these arguments more compelling given the paramount importance I place on defending long-run inflation expectations,” he said.
The Fed has kept its policy rate unchanged at 4.25%-4.50% since December as officials struggle to estimate the impact of Trump’s tariffs, which have raised the prospect of higher inflation and slower economic growth this year.
Massive shocks create uncertainty for policymakers, both in understanding the underlying dynamics of the shocks themselves and in determining the appropriate policy response, Kashkari said.
“In such moments, taking time to get more information to help inform the collective judgments of policymakers may be the best of an imperfect set of options.
Source: Reuters