Fed Governor Michael Barr warned that the recent wave of tariffs is likely to drive inflation higher, citing the potential “Higher short-term inflation expectations, supply chain adjustments, and second-round effects”. Speaking overnight, Barr acknowledged that this could add to inflation persistence even as the broader economy slows and unemployment, currently at 4.2%, edges higher.
Despite these headwinds, Barr said the Fed is in a good position to “wait and see” how economic conditions evolve before adjusting policy. He noted the “considerable uncertainty about tariff policies and their effects,” stressing that monetary policy requires balancing “tradeoffs” between supporting growth and containing inflation.