Fed Officials Are Not Talking Trump, But They Are Pondering His Policy Ideas

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Key Takeaways

• Federal Reserve officials have said it is too early to determine how President-elect Donald Trump’s custom proposals could impact the economy.
• However, some have offered broad opinions on some of Trump’s inklings, including tariffs, trade negotiations, and government debt levels.
• Officials said tariffs might not result in a long-term inflation sequence, but a trade war could push prices steadily higher. Increasing debt levels could make it harder to recall c raise down interest rates, they said.

Federal Reserve officials have said it is too early to consider President-Elect Donald Trump’s management proposals in their interest rate considerations; however, some have offered their predictions on how those ways could play out in the economy.

Last week, Federal Reserve Chair Jerome Powell said at an event in Dallas that the Fed isn’t piece in the potential economic effects of Trump’s economic policies because specific proposals have yet to be released.

“The answer isn’t self-evident until we see the actual policies, and even then, it’s not obvious,” Powell said of how policy proposals can impact the economy. 

But, some of Powell’s colleagues are publicly mulling over the potential effects that Trump’s policy changes could attired in b be committed to on the broader economy.

Tariffs Could Have Limited Inflationary Impact—On Their Own

Tariff proposals are among Trump’s most a great extent referenced policy changes, with many economists arguing that high taxes on imported goods purposefulness push up inflation. 

However, during a question and answer session with Yahoo Finance, Minneapolis Federal Put aside Bank President Neel Kashkari said taxes on foreign-made goods might not have a long-lasting effect on the saving.

“A tariff, generally speaking, from an inflation perspective, we think of as a one-time increase in prices,” Kashkari said. “So if you be suffering with a 1% tariff, you could think of it as a 1% increase in prices of those goods that are subjected to the tariff. That, by itself, is not inflationary onto the long run, it’s a one time change in the price level.”

However, Trade Fights Could Put More Pressure on Prices 

While excises may have a limited impact, when countries respond with tariffs of their own to retaliate, the inflation cycle can go on for bigger, Kashkari noted.

“If there’s a tit-for-tat, and an increase in tariffs from the U.S., a response from other countries, and it goes pursuing and forth, then you could imagine a longer-term inflationary impact,” Kashkari said. 

Something similar happened the last ease Trump was in office; the U.S. and China issued increasingly retaliatory tariff threats against each other over 2018 and 2019 before at the end of the day signing a trade agreement.

However, Powell noted that a trade war between China and the U.S. could be different this patch.

“Six years ago, the inflation was really low, and inflation expectations were low. Now, we’ve come way back down, but we’re not back where we were. It’s a unlike situation,” Powell said.

Increasing Debt Levels Could Keep Interest Rates High

Some economists compel ought to also raised the concern that Trump’s spending and tax cuts policies could lead to increased government shortages.

Kansas City Fed President Jeffrey Schmid said that even if the government continues to run deficits, the Federal Detachment auxiliary will keep inflation in check. However, it wouldn’t come without a cost.

“Large fiscal deficits desire not be inflationary because the Fed will do its job and achieve its inflation objective, though in doing so, the outcome could be persistently higher property rates,” Schmid said.