Goolsbee warns Fed may struggle to distinguish tariff-driven inflation from overheating

Chicago Fed President Austan Goolsbee cautioned that a “series of new challenges to the supply chain”, ranging from natural disasters to trade policy shifts, could create fresh inflationary pressures.

He highlighted the increasing risks from events like tariffs and trade wars, hurricanes, port closures, geopolitical tensions, and labor strikes, all of which could complicate the inflation outlook in 2025.

A key concern for Fed, Goolsbee noted, is differentiating between inflation stemming from economic overheating versus price increases caused by new tariffs. This distinction will be critical in determining the Fed’s policy response.

Goolsbee also compared the current situation to the 2018 trade tensions under President DonaldTrump, noting that while companies previously shifted production out of China, further adjustments could be more challenging this time. The remaining imports from China may be less replaceable.

“In that case, the impact on inflation might be much larger this time,” Goolsbee noted.

Separately, Fed Vice Chair Philip Jefferson signaled that the central bank is in no rush to adjust its policy stance as it assesses the economic impact of the Trump administration’s policy policies on tariffs, immigration, deregulation and taxes. “We can be patient and wait to see the net effect of any policy changes by the current administration,” he said.