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A senior Federal Reserve official warned it would be “an error” to underestimate the potential for planned tariffs of Donald Trump to raise prices.
Austan Goolsbee, president of Chicago Fed, on Wednesday said that the tendency of central banks to pursue “pure economic theory” and to ignore supply shocks such as tariffs were “dangerous”.
The US faced a “series” of challenges for the supply chain, Goolsbee said, including strikes and natural disasters. The economy also faced “the threat of big tariffs and the potential for an escalating trade war,” he added.
“These threats are not of the degree of what happened during the pandemia, but the passage of their possible consequences would be a mistake,” he said.
Comments from one of the senior FED officials and a member of the Central Bank norms panel come just days after the President threatened to impose 25 percent fees on two of the largest trade partners in the US, Mexico and Canada.
Trump said Monday afternoon he was pushing taxes in Canada and Mexico by March 1, but hit China at 10 percent tariffs, making Peking of her tariffs to some US imports.
Goolsbee’s remarks are in contrast to Fed Jay Powell’s chairman, who last week said the norm determinants will have to “wait and see” the impact of tariffs before deciding how they would affect their decisions of the interest rate.
Following the decision to keep interest rates in the range of 4.25 percent to 4.5 percent, Powell said: “We do not know what the fee (ED) will be, we do not know how long or how much, which countries, we do not know For revenge, we do not know how to transmit through the economy to consumers.
However, most private economists expect tariffs to be inflationary, and expectations for lowering nutrition rates this year have dropped significantly since autumn as prices have remained over the Central Bank target.
Goolsbee said the “crushing” teaching of the Pandemia was that central bankers should not ignore the shocks of the supply, saying that these had been “the most important inflation drivers over the past five years”.
“We saw in Covid’s times than the more complex the supply chain, the longer it took to manage,” he said in the prepared remarks.
