Federal Reserve officials "collectively release information": Be cautious about the inflation risk of tariffs, not in a hurry to cut interest rates.

Among the several Fed officials who spoke on Friday, no one is in a hurry to lower the benchmark interest rate. This is mainly due to economists predicting that Trump's tariff measures, which are set to take effect mainly in April, will raise consumer prices, hinder job growth, and potentially harm the Fed's dual mandate to control inflation and maintain high employment levels. At a time when the Fed is seeking to balance the potential competing dual objectives in the future, it seems that taking no action is the best choice. The FedWatch tool from the CME Group shows that as of Friday, financial markets reflect a 51% probability of the Fed lowering the benchmark interest rate in July, and generally pricing in three 25 basis point rate cuts this year. However, the outlook for the economy and interest rates is more uncertain than ever before - nobody knows exactly how the modern economy and its extremely complex supply chains will respond to the highest tariffs in generations. St. Louis Fed President Moselem stated on Friday that the Fed should not commit to further rate cuts until it is clear whether the Trump administration's tariff policy leads to sustained inflation or a less severe one-time price adjustment. Moselem said he currently believes that either form of inflation is possible. In theory, tariffs should drive prices up one time, similar to a tax; but in the wake of recent high inflation, this effect may persist longer, and due to the impact of new tariffs on intermediate products, this effect may also be more lasting. He said this is a reason not to rush to conclusions. The Fed lowered its policy rate by a full percentage point last year, but has not taken any action since December, as Trump's tariff plans now pose a new round of pressure on prices. Moselem said, "High inflation may be temporary, mainly focusing on the second half of 2025, as businesses reduce inventory and pass on new goods tariffs to consumers in a one-time price increase. Equally possible is that inflation may be more persistent." Moselem added, "Committing now to ignore the impact of tariffs on inflation, or relaxing policy, poses a risk of underestimating the levels and duration of inflation. Mistiming a policy shift could come at a high cost to the public in terms of inflation and employment outcomes. If tariffs continue but inflation is temporary, inflation expectations remain stable, economic activity slows significantly, and rate cuts remain appropriate." Regarding inflation, New York Fed President Williams emphasized the importance of price stability in the Fed's "dual mandate." Williams said, "One thing we have learned from history is that having a good inflation expectation gives the public confidence that whatever happens today, inflation will return to 2%, and we will ensure that, this is very important for price stability. It actually helps strengthen our ability to achieve these two goals." However, all these issues remain unresolved. The Trump administration has not yet decided on the final schedule for tariffs, a question that may remain unresolved in the coming months. Meanwhile, despite declining business and consumer confidence, US economic data on employment and inflation has not shown a significant reaction to Trump's efforts to reshape the global trading system. This has been a reason to support the Fed keeping its policy rate unchanged, with Fed officials unanimously agreeing this week to maintain the rate in its current range of 4.25% to 4.5%. Officials generally agreed that it is difficult to decide on further policy measures until the economic impact of a series of government policy decisions is clear. Fed Chairman Powell stated that while tariffs increase the risks of inflation and rising unemployment rates, it is currently unclear how much they will increase, how long they will last, in what order they will increase, and trade negotiations are ongoing, the scope of tariffs is still unclear, it is too early to know how the Fed should respond. Fed Governor Cook stated on Friday that the trade policy implemented by Trump may suppress US productivity and may require higher rates to curb inflation caused by economic inefficiency. Cook said that the uncertainty surrounding Trump's plans could hinder investment, and the rising costs of imported intermediate products and equipment could delay projects that would otherwise improve productivity. Cook said, "Uncertainty in trade policy could reduce future business investment. Currently, companies do not know the final levels and rates of tariffs or their duration. The rise in the costs of imported materials and components may also cause companies to delay or reduce their investment plans." She said the reduction in capital investment "could lead to a slowdown in technological innovation and adoption rates, overall efficiency will decrease," and higher trade barriers could "support less efficient companies," reducing economic competitiveness. Cook said supply disruptions could further lead to efficiency declines. She said that artificial intelligence can improve productivity, but the ultimate result over time is still far from clear. She said that tariffs themselves may reduce potential output. She said that just as recent productivity gains have helped boost economic growth and lower inflation in the US, "a decrease in potential GDP means a weakening of the economy, which means increased inflationary pressures," and rates may rise. Cleveland Fed President Hamaque also expressed similar views on Friday. Hamaque said that the Fed needs more time to observe the economic response to President Trump's tariffs and other policies before determining the correct response, noting that much of the Trump administration's agenda is still unclear. She stated in an interview, "There is not much data between now and June," when the Fed will hold its next rate meeting. She outlined the current dilemma faced by the Fed at the meeting. For example, although the latest data shows that the US economy shrank at an annual rate of 0.3% last quarter, most analysts believe that this is not a clear signal of the economic trend due to distortions caused by trade policy; Hamaque believes that the US economy has always been resilient, and the future direction of development remains uncertain. Likewise, she and other policymakers also noted the strong momentum in the labor market, with the unemployment rate at a low of 4.2%, but they also acknowledge theWith enterprises beginning to consider the impact of the new tariff policy, the labor market faces risks. She said, if the impact of the tariff boosting prices proves to be limited and the economy weakens, "we hope to focus really on employment.She said that in terms of inflation, tariffs may only cause prices to rise once. However, she said that some businesses have indicated that they plan to make a series of price adjustments over time as they understand the level of import taxes they are facing - a process that could extend into the summer. Federal Reserve officials are concerned that the longer these issues drag on, the greater the risk of sustained inflation. This calls for the Federal Reserve to tighten policy. In sum, the uncertainty of government policy "casts a shadow over the outlook, increasing the risks of rising inflation, slowing growth, and a soft labor market," she said in a speech prepared for a meeting on Friday. "Given the starting point of the economy, inflation remains high, and both sides of our dual mandates are likely to face pressures, so there is ample reason to keep monetary policy at its current moderately tight level." Also on Friday, Federal Reserve Governor Kugle stated that interest rates should remain unchanged given the continued strength of the U.S. economy and the increasing uncertainty brought by tariffs. "Overall, the real economy remains healthy, giving us time to continue advancing inflation management and ensuring that inflation expectations remain well anchored." Similarly, Federal Reserve Governor Michael Bahr stated on Thursday that the Trump administration's trade policy could continue to push up inflation, slow economic growth, and raise unemployment rates later this year, presenting policymakers with a difficult decision on which problem to prioritize. However, he added that interest rates are currently at an appropriate level until tariffs have a clearer impact on the economy.