Trump policies could slow rate cuts amid mounting uncertainty, says US Fed official 

Houston - Federal Reserve Bank of Chicago president Austan Goolsbee said the US central bank should proceed more cautiously in lowering borrowing costs amid mounting uncertainty introduced by the Trump administration.

“Now we’ve got to be a little more careful and more prudent of how fast rates can come down because there are risks that inflation is about to start kicking back up again,” Professor Goolsbee said on Feb 3 in an interview on American Public Media’s Marketplace programme.

His comments echoed that of two of his colleagues, who in separate appearances earlier on Fed 3 flagged the increased uncertainty about the future path of the economy.

US President Donald Trump, just two weeks into his new administration, on Feb 1 announced tariffs on Mexico, Canada and China, three of the country’s biggest trading partners.

The levies on Mexico and Canada were postponed for at least a month on Feb 3 after he struck separate border deals with leaders from those countries.

Prof Goolsbee also stressed that the Fed’s task of gauging the impact of tariffs will not be straightforward. 

“It’s going to be hard to tell the difference between a sign of economic overheating and a sign that this is just a temporary result of an escalating trade war or some other geopolitical thing that’s happening,” he said.

“We’re trying to sniff out what’s the through line and we might have to slow the pace of getting to the settling point when we have that much uncertainty.”

He pointed to conversations he has had with executives in his district.

“I’ve got to say, the concerns that I have are in large measure coming from the business people that I’m talking to,” he said.

Prof Goolsbee had been among those Fed officials most supportive of rate cuts over the past several months.

Policymakers held interest rates steady at their Jan 28 and 29 meeting after cutting rates three consecutive times in late 2024. They have said they want to move at a slower pace in 2025, allowing them time to see how the cuts and new policies influence the economy.

“I want to see what the 100 basis points of reduction that we did at the end of last year translates to in terms of the economy,” Atlanta Fed president Raphael Bostic said on Feb 3 during an event organised by the Rotary Club of Atlanta.

“Depending on what the data are, it might mean that we are waiting for a while.”

Boston Fed president Susan Collins also endorsed the idea of proceeding slowly.

“There’s no urgency for making additional adjustments,” she said.

“The data is going to have to tell us. At some point, I certainly would see additional normalisation in terms of what the policy stance is,” she said, referring to potential additional rate cuts.

She noted that there is not a lot of experience on how mega tariffs impact the economy in the modern age, which makes it hard for the Fed to know exactly how things will play out.

She said it is possible that the Fed could even shrug off a one-time increase in inflation tied to the tariffs, although even that was uncertain. BLOOMBERG, REUTERS