Unlike some other central banks, the US Fed has a dual mandate from Congress to ensure both stable prices and maximum sustainable employment over time.
It keeps those twin objectives in balance by lowering or raising interest rates, which act as either a throttle or a brake for demand in the US economy.
“Tariffs are highly likely to generate at least a temporary rise in inflation,” Fed Chair Jerome Powell told the Economic Club of Chicago, according to prepared remarks, warning that the inflationary effects “could also be more persistent.”
“Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and, ultimately, on keeping longer-term inflation expectations well anchored,” he added, echoing similar remarks earlier this month.
Powell said that the Fed could find itself in the “challenging scenario in which our dual-mandate goals are in tension,” noting that price stability is a necessary precondition for “strong labour market conditions.”
US President Donald Trump’s stop-start tariff policy has unnerved investors and trading partners unsure about the long-term policy, and what it might mean for international trade.
Most economists have warned that tariffs will push up prices – at least temporarily – while acting as a drag on growth.
The Trump administration has insisted that the levies are just one part of an overall economic platform, including tax cuts and deregulation designed to stimulate supply, boost growth, temper inflation, and return manufacturing jobs to the United States. (AFP)
