Federal Reserve Board Governor Adriana Kugler addressed growing concerns on Tuesday regarding the impact of US import tariffs, warning that the increases were significantly larger than initially expected and could drive upward pressure on prices. In light of this, she suggested that the Fed should hold short-term borrowing costs steady until inflation risks subside.
Kugler emphasized that the economic effects of these tariffs and the associated uncertainty are likely to be more pronounced than previously anticipated. She supported the decision to maintain the policy rate at current levels as long as inflationary pressures persist and economic activity and employment remain stable.
Highlighting potential challenges, Kugler cautioned that if financial markets tighten persistently, it could hinder future growth. She also noted that while inflation progress has slowed, it remains above the Fed’s 2% target. However, the labor market remains robust and largely in balance, and longer-term inflation expectations appear well-anchored, which she hopes will continue.
Kugler acknowledged that the first-quarter GDP may show some moderation compared to 2024, driven in part by front-loading of purchases to avoid tariffs. Despite this, she stressed that the potential shocks from tariffs and economic uncertainty continue to pose risks.
Regarding inflationary pressures, Kugler stated that wages were not yet contributing to inflation in the services sector. She also highlighted that with declining immigration, wage pressures in sectors like agriculture and construction remain consistent with the Fed’s 2% inflation target.
The market responded to Kugler’s comments with a rise in the US Dollar Index (DXY), which was trading 0.76% higher at 99.73 at the time of the report.
Related Topics:
