Atlanta Fed President Raphael Bostic warned that the Trump administration’s tariff measures and broader policy ambiguity have effectively pushed the economy into a “big pause,” making it difficult for the Fed to chart a clear policy path.

Bostic emphasized that this uncertainty argues against any aggressive policy shifts in either direction. “Moving too boldly with our policy in any direction wouldn’t be prudent.” He likened the current climate to a “really, really thick” fog that hampers effective decision-making.

On the inflation front, Bostic acknowledged that tariffs are likely to exert upward pressure on prices. He now sees inflation returning to that level no sooner than 2027, well beyond previous expectations.

Bostic also anticipates that economic growth will decelerate sharply, with GDP expanding just above 1% this year—less than half the pace seen in recent years.

In a speech overnight, Fed Governor Christopher Waller laid out two divergent scenarios for US tariff policy and their economic fallout.

The first scenario assumes high tariffs, near average 25% or more, and remain in place for an extended period. This reflects a structural shift toward domestic production and reduced trade dependence. The second scenario envisions a negotiated reduction in foreign trade barriers, which would lower the average tariff rate back to around 10%, closer to the levels anticipated earlier this year.

Waller warned that if the “high-tariff” regime holds, the US economy is likely to “slow to a crawl” with inflation rising to around 4% before retreating in 2026, assuming inflation expectations remain anchored. In this scenario, the unemployment rate could climb toward 5% next year as business investment weakens under higher costs and persistent uncertainty.

In contrast, if the current pause in reciprocal tariffs leads to meaningful progress in trade negotiations and the easing of barriers, Waller expects a milder economic impact. Under this “smaller tariff” path, the economy would continue to grow—albeit at a slower pace—while inflation would likely stay on a downward trend toward Fed’s 2% target. In such a case, he said, rate cuts could be warranted later this year as a “good news” policy move.

Full speech of Fed’s Waller here.

Minneapolis Fed President Neel Kashkari acknowledged over the weekend that global investors are grappling with deep uncertainty surrounding the direction of US trade and fiscal policy. Speaking on CBS’s Face the Nation, Kashkari said the bond market’s recent volatility reflects an effort to “determine what is the new normal in America,” particularly regarding long-term Treasury yields.

He emphasized that Fed has “zero ability” to influence that end point, which he said is shaped entirely by trade negotiations and fiscal decisions coming out of Washington.

Kashkari underlined that tariffs are inherently inflationary, but the key question is whether their effect on prices will be temporary or more sustained. “Tariffs push up prices and push down economic activity,” he noted, describing it as a difficult scenario in which Fed’s tools are limited. The central bank’s role, he added, is “to make sure that it’s only a one time adjustment in prices and nothing longer term than that.”

He also made clear that monetary policy alone cannot undo the economic drag from a trade war. As the market digests new rounds of tariffs, retaliation, and policy reversals, Kashkari said, “we’re going to have to watch and see.”

“We can just keep inflation from getting out of hand,” he added.

Speaking overnight, Chicago Fed President Austan Goolsbee said that nothing is “off the table”, including rate hikes, cuts, or holds. The sheer scale of recent trade developments creates a stagflationary shock, and there is “not a generic playbook” for how a central bank should respond to.

Also, Goolsbee noted a key challenge: the data being released now may not yet fully reflect the evolving reality on the ground. That’s why he believes Fed must closely monitor both hard data and soft indicators, especially as lag effects complicate interpretation.

Despite the tariff-related uncertainty, Goolsbee still sees rates trending lower over the next one to two years. Nevertheless, he stressed that should long-run inflation expectations begin to drift, “any central bank almost has to address that… regardless of what the other conditions are.”