Chicago Fed President Goolsbee: I think of tariffs as having a heavy stagflationary component

Inflation and Monetary Policy - The Federal Reserve (The Fed) is closely monitoring inflation reports to assess the economic trajectory and determine the appropriate timing for potential interest rate adjustments [1][2][3] - Recent inflation data presents a mixed picture, with initial reports indicating mild inflation, followed by concerns about rising services inflation and the potential for non-transitory price increases [3] - Import prices are being scrutinized to determine if foreign exporters are absorbing costs, as rising import prices, especially when combined with tariffs, could signal persistent inflationary pressures [4][5][6] - The Fed aims to differentiate between transitory price increases and those requiring a policy response, considering the economic outlook and incoming data [13][14] Tariffs and Stagflationary Risks - Tariffs are viewed as having a stagflationary component, potentially driving up prices while negatively impacting employment [9][12] - The impact of tariffs is complex, extending beyond direct price increases to affect the cost of production for domestic manufacturers through supply chain disruptions [12][13] - The Fed is grappling with the challenge of responding to stagflationary shocks caused by tariffs, as conventional monetary policy tools may be less effective in addressing supply-side issues [9][12] Economic Outlook and Uncertainty - The Fed acknowledges increased uncertainty in the economic outlook, particularly due to the ongoing effects of tariffs and potential policy changes [9][10] - The central bank's policy decisions will depend on whether the economy remains on a path of strong growth with declining inflation, or if stagflationary shocks persist [10][14][15] - The timing of interest rate cuts will be influenced by the incoming data and the assessment of whether inflationary pressures are temporary or persistent [8][9][14]