- The official Fed warns inflation could temporarily increase to 5%.
- He says that prolonged tariffs can lead to a strong increase in unemployment.
- He says that the negative effects on works and production can last much more.
Washington: A senior official of the Central Bank of the USA warned that interest rates may need to be reduced more abruptly than expected if the pronounced tariffs of President Donald Trump in imports remain in place for a prolonged period, since they run the risk of curbing the economy and the elevation of unemployment.
Trump announced radical tariffs at the beginning of April against the majority of US commercial partners in an attempt to address the practices that Washington considers unfair, including a global tax of 10 percent and higher rates specific in the country, especially in China.
The highest rates in the countries other than China have stopped for 90 days, but they would have carried the effective average rate of the US to 25 percent.
Even with the pause, the general average remains about 25 percent due to the high tariff rates imposed on Chinese products.
If this level is maintained for some time, “it is likely that economic growth slows down and significantly increases the unemployment rate,” said the governor of the Federal Reserve, Christopher Waller on Monday, an event in Missouri, according to a copy of his prepared comments.
Waller expects high inflation “to be temporary”, but said it could increase to five percent in the short term, and said the effects “in production and employment could be more durable.”
“If the deceleration is significant and even threatens a recession, then he would expect to favor the reduction of the FOMC policy rate before, and to a greater extent than he had thought earlier,” he said, referring to the Fed fees setting committee.
He added that with a quick slowdown economy in this scenario, the risk of recession would probably exceed the risk of increasing inflation.
The Central Bank of the USA has maintained stable interest rates at 4.25 to 4.5 percent from the beginning of this year.
On Friday, the Trump administration temporarily excluded products, such as smartphones, laptops and chips manufacturing equipment of “reciprocal tariffs”, providing a breath of the global rate of 10 percent and the 125 percent tax on China’s goods.
But many others remain, including an earlier rate of 20 percent on China imports on their supposed role in the fentanyl supply chain and levies on steel and aluminum imports.
