Chicago Fed President Austan Goolsbee said in a webcast overnight that tariffs typically lead to a one-time price increase rather than sustained inflation.
Drawing on textbook theory, he said a 10% tariff would create a 10% rise in prices for imported goods for “one year”, after which the inflationary effect dissipates. Such shocks are usually seen as “transitory” by central banks, Goolsbee explained.
However, he warned against underestimating potential risks, citing lessons from the pandemic-era supply chain disruptions. “We learned the last time around” not to dismiss inflation too quickly, Goolsbee said, referencing how persistent inflation caught the Fed off guard.
He added that scenarios combining rising prices and weakening labor markets, a stagflationary mix, present the most difficult challenge for monetary policy, as “there’s not an obvious playbook”.
