Stock market today: S&P 500 hits fresh record close on stronger economic growth
Investing.com -- Federal Reserve Governor Michael Barr warned Thursday that President Donald Trump’s tariffs will likely push inflation higher and could increase unemployment, signaling a cautious approach to interest rate cuts.
"Low-income households can ill afford increases in prices, and that’s why it is so important that we bring inflation back down to our target," Barr said during a community development event at the Cleveland Fed.
The Fed aims for 2% inflation. While the latest reading from the Fed’s preferred measure was 2.1%, forecasters anticipate Friday’s government report will show inflation increased in May, with further rises expected as businesses pass tariff-related costs to consumers.
Barr noted that tariffs will exert upward pressure on inflation. Recent surveys indicate households expect sharp near-term inflation increases. Barr cautioned this expectation, combined with supply chain adjustments and secondary effects, might cause "some inflation persistence."
"At the same time, tariffs may cause the economy to slow and unemployment to rise," he added, noting low-income workers typically suffer most when job markets weaken. The current unemployment rate stands at 4.2%. Despite low layoff numbers, hiring has been sluggish, which Fed Chair Jerome Powell indicated this week could lead to rapid unemployment increases if companies begin workforce reductions.
"There is still considerable uncertainty about tariff policies and their effects," Barr explained. "Monetary policy is well positioned to allow us to wait and see how economic conditions unfold."
Barr participated in last week’s unanimous Fed decision to maintain short-term borrowing costs in the 4.25%-4.50% range, where they have remained since December.
Fed projections indicate many policymakers favor cutting rates twice this year, suggesting a potential September start to rate reductions after summer data on employment and inflation becomes available.
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