Trump’s on-again, off-again tariff rollout since his return to office in January has unnerved investors and rocked financial markets.
Recent deals to reduce tariffs on China and Britain suggest the administration is serious about wanting to negotiate deals to lower trade barriers and calm global markets.
But it may not be sufficient to stop businesses from raising prices, St Louis Fed President Alberto Musalem told the Economic Club of Minnesota, according to prepared remarks.
“Looking ahead, price pressures appear to be building,” said Musalem, a voting member of the Fed’s rate-setting committee this year.
“Anecdotally, I’ve heard from business contacts that many firms are imposing price surcharges to recoup the costs of higher tariffs,” he said.
Musalem added that recent survey data pointed to more businesses planning to raise prices over the next six months, and to consumers raising their inflation expectations despite market-based measures of expected price increases remaining broadly in check.
The tariffs that Trump rolled out last month were “substantially larger” than many people had anticipated, Musalem said.
“Even after the de-escalation of May 12, they seem likely to have a significant impact on the near-term economic outlook,” he noted, referring to the recent US-China deal to cut new US tariff rates down from 145 percent to 30 percent for 90 days.
Despite these concerns, “the underlying strength” of the US economy, a resilient labour market, and inflation stuck above the Fed’s long-term target of two percent suggest the current level of interest rates is appropriate for the task at hand, Musalem said. (AFP)
