Chicago Fed President Austan Goolsbee said on Monday that the U.S. Federal Reserve could cut interest rates if large-scale tariffs can be avoided.
Avoiding these tariffs through trade agreements or other means could pave the way for easing monetary policy, given the strong economic fundamentals and positive trend in inflation, according to Goolsbee.
Speaking at the 2025 Mackinac Policy Conference, Goolsbee likened the economic impact of tariffs to “a layer of fat on top of healthy abs,” adding, “If we can take that layer off, you’ve got a six-pack underneath.”
Goolsbee’s statements came after the US Trade Court ruled to cancel many tariffs implemented during the Trump administration. It was stated that these tariffs carried the risk of driving up inflation and slowing economic growth. In particular, the practices that went into effect on April 2 and are known to the public as the “Liberation Day Tariffs” are among the developments that the FED is closely monitoring.
Goolsbee said that the labor market was stable before that date and inflation was moving toward the Fed’s 2% target. Under these conditions, he said, the policy rate, currently between 4.25% and 4.5%, could be lowered to an equilibrium level of around 3% in the long run.
However, according to Goolsbee, the uncertainty about customs duties is currently causing companies to postpone their investments. “Companies are putting pens down until there is clarity on trade policy,” Goolsbee said, adding that the Fed is also expecting a similar outcome. Policymakers are concerned that customs duties will disrupt the decline in inflation and increase unemployment.
Goolsbee also warned that if the court ruling creates prolonged uncertainty, it could have more negative effects. He added that the U.S. government could reimpose tariffs on imported goods for different reasons.
*This is not investment advice.
