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Federal Reserve officials predicted solid growth across the world’s largest economy but warned of the threat of a resurgence in U.S. inflation after Donald Trump takes office.
Richmond Fed President Tom Barkin said Americans are still spending freely, job losses remain low and U.S. consumers are starting to rebound against higher prices.
However, Barkin predicted that while this combination could potentially bring “more upside than downside in terms of growth” in 2025, it also “increases the risks on the inflation side.” said.
“There could be pressure on wages and product costs,” he said in a speech Friday. “If so, price setters may have the courage to pass on costs, given recent inflationary experience.”
Barkin’s comments came weeks before Trump returned to office with a pledge to raise tariffs and cut taxes and regulations. He also promised to crack down on immigration and begin mass deportations.
Some economists have warned that this policy challenge could spark new inflation in the United States.
Federal Reserve Chairman Jay Powell said last month that some Fed officials were planning on Trump’s return by incorporating “very conditional estimates of the economic effects of his policies” into their forecasts. He said that he has begun to factor this into his forecasts.
Barkin stressed that uncertainty about what President Trump will actually do clouds the outlook, but there could be “a long period of back-and-forth” before a final plan is developed. I assumed that there was.
He said if economic growth unexpectedly slows, “some of the policies could be reversed, so the damage could be mitigated.”
Federal Reserve President Adriana Kugler said in a speech late Friday that there is a “wide range of views” within the central bank about President Trump’s policies, particularly the impact of tariffs, whether other countries will retaliate, and how consumers will react. emphasized.
“We’re policymakers and we’re looking to the future, so we’re looking at a wide range of possible scenarios,” he said in an interview with CNBC.
Kugler supported the Fed’s gradual rate cuts in 2025, given recent data showing that progress in pushing down inflation is slowing.
“We want to make sure it’s just a temporary thing and not something more permanent,” he said, echoing Barkin, who said the economy was in a “good place.” did.
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The Fed cut interest rates to 4.25% to 4.5% last month, but officials sharply lowered their forecast for rate cuts in 2025 and 2026 and significantly raised their inflation outlook.
Most officials currently expect this year’s cuts to be just 0.5 percentage points, a downward revision from the full percentage points decided in September.
Barkin said Friday that the Fed is “well positioned regardless of how the economy develops.”
“Even if employment slumps or inflation flares up again, we have the tools to respond,” he said.
