Fed officials are increasing inflation risks, Trump's policy uncertainty

By Howard Schneider

(Reuters) – Federal Fund officials notice what they consider increased inflation risks and the uncertain impact of trade, immigration and other President Donald Trump's other policies.

On Thursday, several signed that they still felt that cooling US inflation on time will allow the US central bank to achieve further interest rate cuts; One said that current conditions were constantly demanding rates, and did not give any indication at a moment, or felt that cuts would be needed.

“Going forward, I consider it appropriate to hold the federal funds rate in place for some time, given the balance of risks we are currently facing,” the Governor of the Federal Fund said Adriana Kugler on Thursday .

Inflation still has “some way to go” before reaching a 2% Fed target, he said, and although the labor market is healthy and the risk of weakening has reduced, the risks of upside down to inflation remain.

In terms of Trump's policies, he said, the net impact will depend on the specifics.

Since taking up his post on January 20, Trump has introduced a steady flow of actions – or threats – to force tariffs on goods from key US trading partners, including China, Mexico and Canada.

Still unknown, Kugler and her fellow policy -drawers are drawing attention, is how broad and large they will eventually, and other countries will respond with their own taxes on US exports, and to The extent to which consumers rather than intermediaries will bear the cost.

And while it seems for the time being tariffs could push prices up, it's not clear, he said, adding, “You'll have to wait.”

Atlanta President Raphael Postic said his “basic expectation” was for two quarter percentage point rate cuts later this year, but “the uncertainty around that is quite significant … there is a lot that could happen that could influenced that in both directions. “

Postic said that it is not a voting member of this year's Fed Rate Setting Committee, to reporters in a call that did not believe the US economy is facing a new burst of inflation, which noted that a 4% low unemployment rate of 4% noted Show shows The labor market is healthy.

But there is, he says, enthusiasm and “wide concern” among businesses about how new import taxes, immigration rules, and changes to regulations will affect the forecasts.

“In a nutshell, connections are worried that tariffs could increase costs,” Bostic said. “Many feel confident, if that happens, then they can transfer higher costs at their prices.”

Inflation is already proving more sticky, and its progress towards the Fed's 2% target is more uneven, than many had expected. Consumer prices increased by 3% year -on -year in January, the fastest speed since last June.

The Fed held its benchmark interest rate in the 4.25% -4.50% range at last month's policy meeting and is expected to do so again in its assembly March 18-19, as officers await more clarity on how the administration's new policies are affects the economy. Financial markets are now pricing in just one Fed rate cut this year, in June at the earliest.

Near -term inflation expectations

President St. Louis Fed Alberto Musalem sees the upcoming policy shifts increasing the risk of a stand inflation above the central bank's 2% target, or moving higher, requiring it to stay back for longer And, in a worst scenario if the job market is also weakening, are forced to choose between fighting inflation with higher rates or cushioning the economy with easier policy.

Musalem, who spoke to New York Economic Club, did not identify his fundamental expectation for the number of rates cuts likely to be appropriate this year, although he said the policy rate should be reduced once there is a “inflation convergence” to the Fed's 2%goal is assured.

“Market and some survey measures indicate that inflation expectations in the near term have risen particularly over the past three months,” Musalem said. If inflation gets stuck at current levels above the target or expectations arise, “A more restrictive route of monetary policy may be appropriate.”

President Austan Gooolsbee Chicago, typically among the more dovish of the Central Bank policy makers, fed before the recent policy and geopolitical uncertainty, that general inflation “looks pretty good” and that he was down significantly from ' to the midfield of 2022.

The tariffs that Trump forced during his first season did not have a significant impact on inflation, Goolsbee said, partly because they were narrower and contained enough exceptions that supply networks were not affected.

But when thinking about the higher and higher tariffs currently being developed by Trump, “it depends on how many countries they are going to apply to and how big the stone They are going to be.

(Reporting by Howard Schneider, Michael S Derby and Dan Burns; Writing by Ann Saphir; Edited by Paul Simao and Lincoln Fast.)

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