FED Board Member Austan Goolsbee made important assessments regarding the economic outlook and the effects of trade policies on inflation.
Goolsbee said that attention should be paid to the moderate course of economic data during the transition period.
Goolsbee, while evaluating the effects of the customs duties that have recently come back to the agenda, stated that these policies are “no different from oil shocks with a stagflationary effect.” However, he added that this effect is weaker compared to the past. He stated that lower customs duty rates and exemptions limit the reflection of customs duties on the economy.
Goolsbee said it was still unclear how tariffs would drive inflation. “If we don’t see a spike in inflation from tariffs, then the economy is still on a golden path,” he said, adding that there has been no significant increase in inflation in the past three months.
The Fed official argued that if the impact of trade policy is completely gone, interest rate cuts should continue. However, Goolsbee expressed concern about the possibility of stagflation and said it was not clear what policy to follow in this environment.
Goolsbee said he did not believe a 1970s-style stagflation would hit the U.S., but noted that the Fed faces certain risks in its dual mandate of encompassing employment and price stability goals.
*This is not investment advice.
