Fed’s Williams Says Tariffs Will Likely Boost US Inflation

(Bloomberg) -- Federal Reserve Bank of New York President John Williams said he anticipates tariffs will contribute to inflation, but emphasized there is a lot of uncertainty about how the economy will respond to President Donald Trump’s levies.

“Based on what we know today, given all the uncertainties around that, I do factor in some effects of tariffs now on inflation, on prices, because I think we will see some of those effects later this year,” Williams said Tuesday during the Bloomberg Invest conference in New York.

You also “have to factor in how does that affect economic activity — decisions by businesses to invest, consumers to spend?” Williams said. “And that’s where I think another big uncertainty is.”

When asked whether policymakers will consider adjusting interest rates at this month’s meeting, Williams said monetary policy is in a good place and that he doesn’t see the need to change borrowing costs right away. He described policy as “modestly restrictive,” and reiterated he expects inflation to move toward the central bank’s 2% goal over time.

Policymakers left borrowing costs unchanged in January after lowering their benchmark interest rate by a full percentage point late last year. Officials have said they want to leave rates steady until they see more evidence inflation is on track to reach 2%.

During the conversation with Bloomberg Television’s Michael McKee, Williams said he expects good growth this year, albeit slower than last year.

The New York Fed chief said businesses passed through the costs of tariffs to their customers after the levies were enacted on some goods in 2018. While firms are more attuned to how to pass along price increases, he said many consumers are also more price sensitive.

Inflation Expectations

Williams said he is watching inflation expectations “very closely” and said talk about tariffs is influencing how consumers think about price growth in the near term. However, he said he still isn’t seeing “as much of an indication in most of these surveys that that’s about long-run inflation or inflation in the future.”

Stock markets around the globe plunged this week, reflecting President Trump’s sweeping tariffs on America’s largest trade partners and mounting worries about the growth outlook. The US levied 25% tariffs on most goods from Canada and Mexico and doubled tariffs on China to 20%.