Investing.com -- The President of the Federal Reserve Bank of Boston, Susan Collins, warned on Thursday that the large trade tariffs currently being pursued by the Trump administration will likely lead to higher inflation and slower economic growth in the near future.
Collins indicated that this situation creates difficult choices for the central bank regarding interest rate policy. The Fed is attempting to maintain stable price pressures while also supporting the job market. In her prepared remarks for an event at Georgetown University in Washington, Collins stated, "I see monetary policy as well positioned to address a wide range of potential economic outcomes in this highly uncertain environment." She further added that maintaining the current monetary policy stance seems to be the appropriate move for now.
However, Collins also acknowledged the difficulty in predicting how policy and the broader economy will respond to the current uncertainties. She stressed the importance of managing potential inflation risks and threats to growth, as well as preventing inflation expectations from rising significantly.
Collins anticipates that inflation will eventually return to the Fed's 2% target over the long term. In the near term, however, she stated that her bank estimates that core inflation levels could rise well above 3% due to Trump's import tax increase. She also noted that these policies are still in progress and subject to change.
Collins emphasized the need for monetary policy to be flexible in these uncertain times. She suggested that it might be appropriate to lower the federal funds rate later this year, but noted that renewed price pressures could delay further policy normalization. Collins also expressed the need for confidence that the tariffs will not destabilize inflation expectations.
Collins's comments come in the wake of significant market volatility as Trump has announced and then partially retracted massive tariffs. Some banks now believe that Trump's actions could end the strong economic expansion and potentially dampen interest in U.S. investments. This pessimistic outlook has led traders and investors to anticipate a series of Fed rate cuts, even as Fed officials continue to emphasize the importance of controlling inflation pressures.
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