Fed, Warning on Trump's Tariff Policy…Concerns Over Inflation and Rising Unemployment

Michael Barr Federal Reserve Director (Source: Bloomberg)

The US Federal Reserve has warned that the tariff policy of the Donald Trump administration could seriously impact the US economy. At the Reykjavik Economic Conference hosted by the Central Bank of Iceland on the 9th (local time), Michael Barr, a Federal Reserve Director, expressed concern that "the tariffs will cause US inflation to rise and global economic growth to slow down from later this year."

He explained that high tariffs could disrupt global supply chains and exert sustained upward pressure on prices. He particularly emphasized that small and medium-sized enterprises could take a significant hit from this. Director Barr added, "The recent tariff increases show an unprecedented scale and scope in modern times," but also noted that "it is still difficult to predict what impact they will ultimately have on the economy."

Earlier, Federal Reserve Chairman Jerome Powell also warned in a press conference held after the FOMC's decision to hold rates steady on the 7th, that "if tariff increases continue as scheduled, there is a high possibility of inflation rising, economic growth slowing, and unemployment rates increasing."

Meanwhile, Federal Reserve Bank of New York President John Williams highlighted the independence and accountability of central banks in a speech at the same event. He explained that "as history proves, price stability is achieved more successfully when a central bank fulfills its responsibility to its goals and maintains independence in policy decisions." President Williams stated, "Regardless of economic shocks or changes in government policy, it is the central bank's top priority to maintain price stability."

Even as President Trump strengthens protectionism through tariff policies and continually pressures the Federal Reserve to lower interest rates, the central bank has repeatedly emphasized the need to maintain independence without political interference.

On the same day, Thomas Barkin, President of the Federal Reserve Bank of Richmond, stated at an event hosted by a Virginia regional business group that "companies may find it difficult to reflect rising tariff costs in product prices." He explained, "Listening to retailers, it seems that consumers have already reached the limit on price increases," and "transferring costs to consumers is not as easy as it seems."

The successive remarks from Fed officials are interpreted as signals of concern over the impact of the Trump administration's tariff policies on the US economy. Amid expectations of various side effects such as disruptions in global supply chains, hits to small and medium-sized enterprises, and rising consumer prices, the Federal Reserve emphasized its readiness to mitigate economic shocks through the independent role of the central bank. Experts analyzed that although Trump's protectionist policy may achieve short-term political objectives, it could increase economic uncertainty in the long term. The response of the US central bank is expected to be a key variable in future economic policy.