Fed's Williams: Tariffs are inflation risk, rate policy in good place

By Michael S. Derby

NEW YORK (Reuters) -Federal Reserve Bank of New York President John Williams said Tuesday he expects Trump administration tariffs to drive up inflation to some degree, while reckoning that for now, central bank interest rate policy is in the right place and does not need to be changed.

“My view is, based on what we know today, given all the uncertainties around that, I do factor in some effects from tariffs now on inflation, on prices, because I think we will see some of those effects later this year,” Williams said at an event held by Bloomberg in New York.

The official noted that tariffs that hit consumer goods could flow though quickly to inflation while other parts of the economy might see a slower moving impact.

But he cautioned, “there's a lot of uncertainty: We don't know how long the tariffs will apply. We don't know what other countries may do in response to this.”

He added it was not just tariffs that need watching but the broader scope of Trump policy actions, especially when setting monetary policy. “It makes sense to collect some more information, not only about what's happening with trade policy, but obviously there is also what we're seeing in terms of other policies, fiscal policy and regulatory policy.”

When it comes to the prospect of cutting rates, “I think the current place for policy is good. I don't see any need to change it right away,” Williams said.

He added “it’s really hard to know” if rate cuts will happen this year, while noting rate policy right now is “modestly restrictive and is helping keep the economy, I think, in good balance.” He also said he sees a solid labor market and growth proceeding on a path consistent with its long-run potential.

TARIFF TIME

Williams’ remarks come as the Trump administration imposes massive tariffs on America’s three largest trading partners, Canada, Mexico and China, after having in the recent past threatened and then dialed back on imposing the full scope of what are effectively taxes paid by U.S. citizens to purchase foreign goods.

In recent remarks Williams had flagged the considerable uncertainty created by big changes in government policies and like many Fed officials, had refrained from commenting on the impact of tariffs until he saw more concrete actions by the administration.

Economists have long warned that Trump’s tariff agenda would run a serious risk of reigniting inflation pressures and lowering growth. With the taxes now imposed, forecasters are marking up their estimates of price pressures while downgrading growth.