Fed’s Schmid: Tariffs have elevated economic uncertainty

Kansas City Federal Reserve (Fed) President Jeff Schmid said that he would remain “squarely focused” on inflation and cautioned that new United States (US) import taxes could drive prices higher and bolster rising public inflation expectations. Schmid’s prepared remarks did not address March CPI or President Trump’s announced pause on certain tariffs.

Key highlights

• Tariff announcements have elevated economic uncertainty, coincided with falling sentiment and rise in short-term inflation expectations.
• Relative to earlier in the year, there is a marked increase in risk of higher inflation, lower employment and growth.
• Growing possibility the Fed will have to balance inflation risks against growth and employment.
• Intend to remain focused on inflation, do not take much solace from theory that tariffs may have only temporary effect on inflation.
• He is concerned further increase could push up inflation expectations, given previous high inflation.
• Not willing to take any chances with Fed’s credibility on inflation.
• Growing supply of US treasury debt along with potentially shrinking demand is a recipe for higher interest rates in the longer term.
• The US is entering a challenging period from a position of strength, labour market has remained robust.