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Investing.com-- Minneapolis Federal Reserve President Neel Kashkari warned on Monday that supply shocks stemming from President Donald Trump’s trade tariffs stood to underpin inflation and dampen growth– presenting a stagflationary scenario.
Speaking during an interview with Bloomberg TV, Kashkari warned that the Fed was unlikely to have enough clarity to alter interest rates by September, and that the central bank needed to see more trade deals and dee
“Uncertainty is something that we are dealing with at the Fed, as we’re trying to navigate where inflation is going, where the labor market is going,” Kashkari told Bloomberg.
He warned that the impact of the tariffs was still yet to be felt by American consumers, and that the impact of Trump’s trade duties was likely to be stagflationary.
“There’s no question that the shock of tariffs are stagflationary, the question is going to be ultimately how high (the tariffs) settle at, and how long a period is this uncertain environment and the tariffs are going to last,” Kashkari said.
He said that the stagflationary impact of tariffs would be subdued if the tariffs did not remain in place for longer.
Speaking on the recent increase in Treasury yields, Kashkari noted that investors were beginning to reassess investing in the United States, and that shifting yields could represent a new global paradigm.
Uncertainty over Trump’s trade policy ramped up after his inauguration, especially as the President flip-flopped on several major tariff decisions. His steep trade tariffs on China also sparked a bitter trade war with the country, although Washington and Beijing did agree to a deescalation earlier in May.
On the fiscal front, Treasury yields have also risen sharply in recent weeks on concerns over high U.S. debt levels and fiscal health, especially after Moody’s recently cut the U.S. sovereign rating.