Fed's Goolsbee: Can't ignore threats to supply chains like tariffs

Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee noted on Wednesday that it is difficult for central banks to generally estimate the fallout of things like tariffs, and could complicate the Fed's ability to accomplish its task of bringing inflation down to 2%.

Key highlights

If inflation rises or progress stalls, US central bank will need to figure out if it's from overheating or tariffs.

Inflation has come down and is approaching Fed's 2% goal.

US has a strong economy and plausibly full employment.

Distinguishing the cause of any inflation will be critical for deciding when or even if the Fed should act.

COVID-19 pandemic experience shows supply chain disruptions can have a material impact on inflation.

Ignoring potential consequences of new threats to supply chains, like tariffs, would be a mistake.

Opinions differ widely on how much tariffs would get passed into prices, suppliers may have to eat the cost.

Tariffs this time may be broader and higher than in 2018; impact could be larger and longer-lasting.