News

(Bloomberg) -- Federal Reserve Vice Chair Philip Jefferson said tariffs and related uncertainty could slow growth and boost inflation this year, but monetary policy is well positioned to respond as needed.

Jefferson stressed heightened uncertainty about government policies, and said it is not yet clear if tariffs will have a short-lived or more persistent effect on price growth. He marked down his economic growth forecast for this year, but said he still expects the economy to continue to expand.

“If the increases in tariffs announced so far are sustained, they are likely to interrupt progress on disinflation and generate at least a temporary rise in inflation,” Jefferson said Wednesday in prepared remarks for a conference organized by the New York Fed.

“With the increased risks to both sides of our mandate, I believe that the current stance of monetary policy is well positioned to respond in a timely way to potential economic developments,” he added.

Fed officials left their benchmark rate unchanged last week and said there were greater risks of the US economy facing higher unemployment and rising inflation.

Policymakers have shown little eagerness to lower borrowing costs until there is more known about the final state of President Donald Trump’s tariffs and how they may affect the economy. Jefferson said the net effect of different government policy changes, including trade and immigration, will likely remain uncertain for “some time.”

Changing Tariffs

Underscoring the high level of uncertainty, the Trump administration and China recently agreed to temporarily lower tariffs for 90 days. That includes lowering US levies on many Chinese goods to 30% from 145%.

Economists say the truce reduces the odds of a full-blown recession later this year, but it’s likely not enough to prevent a slowdown in the US economy.

Jefferson said recent inflation data show further progress toward the Fed’s 2% target, but cautioned the “goal has not yet been reached.” He said rates are currently “moderately restrictive.”

US inflation rose by less than expected in April, according to the latest consumer price index data released Tuesday. The report showed goods exposed to higher tariffs, including new cars and clothing, are not yet showing the kind of price increases economists are expecting.

“I have adjusted down my expectations for economic growth this year, but I see the US economy as continuing to expand,” Jefferson said. “Of course, trade policy is still evolving, so its ultimate economic implications are not known, and I will be following developments carefully.”