Neel Kashkari, president of the Minneapolis Federal Reserve, has warned about the inflationary effects that could result from President-elect Donald Trump’s proposed tariff plan.
Kashkari warned in an interview with CBS’ “Face the Nation” that one-time tariffs should not have a long-term effect on inflation. The risk is the potential for retaliatory measures from other countries.
The danger of a trade war around the world: a “tit-for-tat” scenario
Kashkari stressed the concern about a “tit-for-tat” escalation where a country’s tariffs triggers retaliatory actions from other countries, leading to a trading war.
Kashkari said, “If there is a tit-for-tat, and it is one country imposing tariffs, and then responses, it escalates,” “That’s when it becomes more worrying and, frankly a lot less certain.”
This uncertainty is a serious threat to the Fed’s efforts to control inflation.
Trump’s tariff plan – universal import taxes with a focus on China
During his first tenure, Trump started a trade war against China by imposing import duties on Chinese goods. This led to retaliatory taxes from China.
Trump’s proposal currently calls for universal tariffs to be applied to all imports. The rate on goods from China is particularly high at 60%.
This aggressive approach has caused concern among economists, Wall Street Analysts, and industry leaders regarding the potential for renewed inflationary forces, especially since inflation has only just begun to subside after pandemic-era heights.
The Fed’s fight against inflation: progress and uncertainty
Kashkari acknowledged that “we’ve made significant progress in bringing down inflation.”
“I don’t want declare victory just yet. We still have a lot to do, but we are on the right track.
The Fed has recently cut interest rates for the second time in a row, further easing monetary policy at a time when inflation is approaching the central bank’s target of 2%.
Kashkari said that a rate cut may be coming in December depending on the economic data.
Fed independence: navigating the political pressures
Trump’s other policies, such as his immigration plan, have uncertain inflationary implications.
The Fed has adopted a “wait-and-see” approach. It carefully monitors the potential economic effects, before adjusting its policy.
Trump and his prominent supporters, such as Tesla CEO Elon Mohs, have both expressed a desire for Fed policy decisions to be influenced.
The central bank, however, views its political independence to be crucial for making objective decisions on monetary policy based solely upon the health of the US Economy, and not political incentives.
Kashkari expressed his confidence in the Fed’s ability to maintain independence, saying, “I am confident that we will focus on our economic jobs.” This is what should be dictating our actions and it is what we are doing.
This post Trump’s Tariff Plan Risks Reigniting Inflation, Warns Fed Official may be modified based on new developments.
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