Federal Reserve vice chairman Philip Jefferson said Wednesday that if the tariffs already unveiled by President Trump are sustained, it will cause “at least” a temporary increase in inflation.
There are signs in the recent data of progress on inflation, Jefferson noted in a speech, but there remains “much uncertainty” about the future path of prices.
“If the increases in tariffs announced so far are sustained, they are likely to interrupt progress on disinflation and generate at least a temporary rise in inflation.”
Read more: April inflation breakdown: Food, shelter, and medical care pinch consumers’ wallets
Whether the tariffs lead to longer-lasting increases in inflation, he said, will depend on how trade policy is implemented, the pass-through to consumer prices, the reaction of supply chains, and the performance of the economy.
One of the big questions facing central bank policymakers at the moment is whether the expected increase in prices triggered by President Trump’s trade policies will be transitory or not.
The White House has argued that the Fed should view any increases as a one-time event, with Trump himself repeatedly calling for the Fed to lower rates, but many Fed officials have made it clear they are not sure which way things will go.
The uncertainty highlights the dilemma for the central bank as it tries to weigh both sides of its mandate — stable prices and maximum employment — at a time when the true effects of White House trade policies on the economy are still unknown.
Fed officials said at their policy meeting last week that “risks of higher unemployment and inflation have risen.”
This week, the latest look at the Consumer Price Index (CPI) for April showed that prices remained sticky despite some signs of cooling, adding to the uncertainty surrounding the outlook.
So-called core CPI inflation, which excludes volatile food and energy prices, increased 2.8% over the prior year in April, holding at that level for the second month in a row and in line with expectations. The Fed prefers to look at the core reading, and its goal is to get inflation down to 2%.
Core prices in April also climbed 0.2% over the prior month. That was ahead of March’s 0.1% rise, although lighter than anticipated.
Following the CPI reading, investors did not change their bets that the Fed will stay cautious on any near-term rate cuts. They still expect a first cut in September, following holds at meetings in June and July.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Jefferson said Wednesday he views current interest rate levels as “moderately restrictive” and that the Fed is “well positioned to respond to developments that may arise.”
He pointed to various measures of consumer and business sentiment that have declined sharply this year and said he will be watching to see whether that translates into actual data.
Given decline in business sentiment and warnings from retailers of price hikes due to tariffs, as well as manufacturers warning of supply chain disruptions, Jefferson said he has lowered his expectations for economic growth this year but still sees the US economy expanding.
“Of course, trade policy is still evolving, so its ultimate economic implications are not known,” he added.
While the first reading on first quarter GDP contracted slightly by 0.3%, Jefferson said the surge in imports overstated the deceleration in economic activity.
He pointed to private domestic final purchases, which came in at a 3% rate in the first quarter, consistent with readings from last year, that offer a more accurate indication of underlying demand in the economy.
Discussion of an economic downturn later in 2025 had been surging this spring as economists argued Trump’s widespread tariffs would boost inflation and slow economic growth.
Now, with the bulk of tariffs on goods from China paused for 90 days — and optimism around further trade deals building — economists argue that economic growth will still slow later this year, but the odds of a recession have diminished.
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