Inflation remains above the central bank’s 2% goal and has accelerated since April, according to policymakers’ preferred gauge
[HOUSTON] US Federal Reserve Bank of Chicago President Austan Goolsbee said that the most recent round of tariffs may be causing businesses in his district to again pause decision-making in order to see where the levies settle.
“Now, it seems like we are going into a new wave of tariff announcements,” Goolsbee said on Tuesday (Sep 30) at an agricultural conference hosted by his bank.
“When I’m out talking to people, it feels like they are just wary, they are uncertain and we might be going back into that, everybody-just-put-your-pencils-down kind of a moment, where you just wait until you figure out where it’s going to be,” he added.
US President Donald Trump has in recent days announced new tariffs on products including heavy trucks, lumber and kitchen cabinets. Tariffs impact Goolsbee’s reserve bank district, which includes the manufacturing core of Michigan, all of Iowa and parts of other neighbouring states, particularly hard, he said.
Trump announced his first round of country-specific tariffs in early April and frequently changed the rates and implementation dates in the months that followed. The president also expanded tariffs on certain sectors, including some metals and industrial inputs. The uncertainty drove many businesses to pause major investment decisions as they waited to see what the levies would ultimately look like.
That also helped convince Fed official to keep interest rates on hold for much of this year. Policymakers finally lowered rates by a quarter percentage point earlier this month in a bid to shore up the labour market.
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While the unemployment rate has increased in the past few months and hiring has slowed, employers have not yet made significant layoffs. Goolsbee called the labour market stable, though he noted that the “low hiring, low firing” environment is unusual.
Inflation, the Fed’s other mandate, remains above the central bank’s 2 per cent goal and has accelerated since April, according to policymakers’ preferred gauge. Goolsbee said that he’s concerned about an increase in services inflation and that the rise in broader price pressures could be more persistent than just the one-time pass-through typically associated with tariffs.
Fed independence
The Chicago Fed chief also said that he’s concerned about the support among some government officials for giving the Trump administration the power to influence interest rates.
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“I’m uncomfortable with a scenario that we are going to explicitly call for getting rid of Fed independence,” Goolsbee said. “I would just caution everybody to go look at places where that’s what happens and see what the outcomes are.”
Academic research has shown that countries with independent central banks generally experience lower inflation and better economic outcomes.
Speaking earlier on Tuesday, Boston Fed president Susan Collins said additional rate cuts may be appropriate in 2025 given a weaker labour market, but officials need to remain on guard against the possibility of persistent inflation.
Fed vice-chair Philip Jefferson, who delivered a speech Tuesday in Helsinki, said that both of the central bank’s mandates were coming under pressure. “I see the risks to employment as tilted to the downside and risks to inflation to the upside,” Jefferson said. BLOOMBERG
