Austan Goolsbee, the President of the Chicago Federal Reserve, addressed the complexities introduced by President Donald Trump’s recent tariff proposals during a Finance Newso interview on Friday. He noted that these developments have likely delayed any potential adjustments to interest rates.
Goolsbee expressed a preference for lower interest rates moving forward, but indicated that the Federal Reserve is likely to maintain its current stance as it monitors evolving trade policies and their implications for inflation and employment levels.
During his appearance on “Squawk Box,” Goolsbee emphasized that while all options remain on the table, there is a heightened threshold for taking any action as clarity regarding trade policies is sought. He remarked, “If they’re putting in place tariffs that have a stagflationary impact … then that’s the central bank’s worst situation.”
He further acknowledged the need to evaluate the magnitude of the tariff’s effect on prices, acknowledging public discontent with inflation: “I know people hate inflation,” he noted.
The central banker’s comments come as Trump again stirred market reactions, proposing a 50% tariff on European Union products starting June 1 and announcing a 25% tariff on iPhones produced outside the U.S. Apple predominantly manufactures its iPhones in China, with some production also occurring in India.
Although the anticipated increase in iPhone prices may not significantly affect the broader economy, the situation highlights the unpredictable nature of U.S. trade policies and the existing anxiety in financial markets over fiscal matters that have led to sharp increases in bond yields.
Typically, central bankers avoid interjecting themselves into discussions of fiscal and trade policies, but are nonetheless required to assess the implications of these policies.
Despite the tumult, Goolsbee remains optimistic about the potential for robust economic growth in the long term, even before Trump’s tariff announcements in April created market instability.
“I’m still underneath hopeful that we can get back to that environment, and 10 to 16 months from now, rates could be a fair bit below where they are today,” he stated.
As a voting member of this year’s rate-setting Federal Open Market Committee, Goolsbee will have the opportunity to contribute to discussions at the upcoming meeting scheduled for June 17-18. At this meeting, officials will reassess their economic outlook and interest rate projections, following the March update which suggested two potential rate cuts for the year.
Market analysts anticipate that the Federal Reserve will implement two rate cuts during 2023, with the next likely adjustment occurring in September. However, Goolsbee has refrained from committing to any specific actions, given the prevailing uncertainty.
“I don’t like even mildly tying our hands at the next meeting, much less over six, eight, 10 meetings from now,” he remarked. Nonetheless, he expressed that prior to April 2, he felt the economy was achieving stable full employment and that inflation was trending back toward 2%, suggesting that favorable conditions for rate reductions could emerge within the next 12 to 18 months.
The Federal Reserve currently targets its benchmark overnight borrowing rate between 4.25% and 4.5%, where it has remained since December, with the most recent rate recorded at 4.33%.
