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The Federal Reserve's top official has warned of the threat of further US inflation after Donald Trump takes office, even as he predicted strong growth in the world's largest economy.
Richmond Fed President Tom Barkin said Americans are still spending freely, job losses remain low and U.S. consumers are beginning to push back against higher rates.
But while the combination could deliver “more downside growth” in 2025, Barkin said he expected “more risk on the upside”.
“Wages and production costs may see pressure,” he said in a speech on Friday. If they do, given recent experience with inflation, raters may have more confidence in meeting costs.”
Barkin's comments come just weeks before Trump returns to the US presidency with a pledge to raise tariffs and cut taxes and regulations. You have also committed yourself that you are going to overdo it immigration and begin mass deportations.
Some economists they have warned that the policy agenda could trigger a new rate of inflation in the US.
Some Fed officials have also begun to factor Trump's return into their forecasts, US bank chairman Jay Powell said last month, by including “very restrictive estimates of the economic effects of policies in their forecasts”.
Barkin emphasized that there is uncertainty about what Trump will do, but it is thought that there could be “an extended period of back and forth” as final plans are made.
If economic growth has unexpectedly slowed down, he said, “the damage can be reduced by being able to walk some of these policies back”.
I Fed last month it cut interest rates to 4.25-4.5 percent, while officials significantly reduced their forecasts for rate cuts in 2025 and 2026 and sharply raised their inflation forecasts.
Most officials now expect a half-point cut this year, down from the full percentage point they penciled in in September.
Barkin on Friday said the Fed was “well positioned no matter how the economy develops”.
“If employment were to slow or inflation resurface, we have the tools to respond,” he said.