Investing.com - U.S. President Donald Trump’s tariff agenda is likely to push up inflation, weigh on employment, and dent growth later this year, according to Federal Reserve Governor Michael Barr.
Should prices and unemployment begin to rise, the rate-setting Federal Open Market Committee may be in a more difficult position as it assesses its next policy moves, Barr added in prepared remarks to the Central Bank of Iceland on Friday.
"The size and scope of the recent tariff increases are without modern precedent, we don’t know their final form, and it is too soon to know how they will affect the economy," Barr said.
The statement was the first Barr, who stepped from his prior role as Fed Vice Chair for supervision in February but stayed on as a Fed Governor, has delivered on monetary policy in roughly a year.
However, Barr argued that, given progress in corralling inflation back down to its 2% target level and the overall economy’s "strong starting point", the Fed’s monetary policy is in a "good position to adjust as conditions unfold". In the first quarter, U.S. gross domestic product contracted due largely to the spike in imports, although consumer spending and labor market indicators remained resilient.
Earlier this week, the central bank left interest rates on hold at a range of 4.25% to 4.5%, but flagged that risks to inflation and the job market are increasing. Fed Chair Jerome Powell later suggested that these risks were likely linked to Trump’s sweeping tariffs, adding that it was "not at all clear" what the appropriate response for interest rates should be in response to the tariff uncertainty.
In early April, Trump unveiled punishing levies on dozens of U.S. trading partners, saying the moves were necessary to reshore lost manufacturing jobs and bolster government revenues. However, he later instituted a 90-day pause to the duties on most of these countries, claiming it would give officials more time to negotiate a slew of individual trade agreements.
On Thursday, Trump and U.K. Prime Minister Keir Starmer announced a trade deal between the U.S. and Britain, bolstering hopes that the White House could secure aggrements with other nations. Talks are due to take place in Switzerland this weekend between U.S. and Chinese officials, with Trump suggesting that heightened levies of at least 145% on Beijing will eventually be lowered.