By Ann Saphir
(Reuters) – Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday said he’s uncertain about the effect of President Donald Trump’s tariffs on the U.S. economy, with the possibility that they could push up prices arguing for higher interest rates, and the chance that they could slow economic growth calling for reducing borrowing costs.
Together those forces are “kind of a wash,” he told the Detroit Lakes Chamber Economic Summit, meaning that the Fed should “just sit where we are for an extended period of time until we get clarity.”
Kashkari’s comments reflect what appears to be a widely held view at the Fed that there is no rush to cut rates, as Fed Chair Jerome Powell also signaled last week after the central bank held short-term interest rates in the 4.25%-4.5% range.
Optimism among households and business leaders has plummeted in recent weeks as Trump has laid on new tariffs, later suspending some but also promising more to come next week. Consumers and corporations fear higher prices could lead to more inflation.
Those fears were on display at the event, where Kashkari conducted an electronic poll that showed that the key words members of the audience use to describe what is driving their economic outlooks are Trump, tariffs, inflation and uncertainty.
“Some of the policy uncertainty that you all talked about in your word cloud is complicating our analysis of the economy,” Kashkari said.
Indeed, Kashkari said, the drop in sentiment could slow household and business spending even more than the actual tariffs, which so far have been only partially rolled out.
“That makes me nervous,” he said, and the longer the hit to confidence lasts, the more meaningful the impact on economic activity. “The good news is that hit to confidence could be restored quickly if there are resolutions of these trade uncertainties” through trade pacts with other countries, he said.
The U.S. central bank has made a lot of progress bringing inflation down, Kashkari said, but “we have more work to do” to get inflation to the Fed’s 2% target.
“The biggest challenge for us right now is to finish the job.”
(Reporting by Ann Saphir; Editing by Andrea Ricci)
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