Fed's Goolsbee hopes tariffs won't cause significant inflation but seeks months of clarity.

Fed's Goolsbee hopes tariffs won't cause significant inflation but seeks months of clarity.

Chicago Fed President Austan Goolsbee delivered a cautiously optimistic outlook on the economic impact of recent tariffs, stating that the surge has not yet delivered the significant shock many had feared. Speaking at a mid-year business outlook event in Milwaukee, Goolsbee noted that the fallout so far has been "somewhat surprisingly" modest, particularly in terms of inflation. While uncertainty remains around future price pressures, the current evidence suggests that the economy may still be on a favorable course [1].

Goolsbee's remarks echo a growing sentiment within the Federal Reserve that policy easing could resume later this year, provided inflation continues to behave and growth risks mount. If the tariff increases do not result in inflation, Goolsbee believes the economy could still be on a "golden path" of disinflation without a major slowdown, supporting the case for eventual rate cuts.

Meanwhile, President Donald Trump has revealed that he is actively considering three to four candidates to replace Federal Reserve Chair Jerome Powell once his term expires in May 2026. Trump referred to Powell as an "average mentally person," reflecting years of tension between the White House and the Fed over interest rate strategy and inflation control. The potential candidates include Kevin Warsh, Kevin Hassett, Christopher Waller, and Scott Bessent, each representing a potential shift in policy towards lower interest rates and pro-growth frameworks [2].

Market reaction to Trump’s remarks was measured but cautious. While Powell's leadership has been seen as steady by many investors, the prospect of a new, more politically aligned Fed chair could accelerate expectations of rate cuts, influence bond yields and dollar strength, and create volatility in inflation-sensitive sectors. Trump has publicly pushed for significant rate cuts, a stance that contrasts sharply with Powell’s patient, data-driven approach.

In conclusion, while Goolsbee remains hopeful that tariffs won't cause significant inflation, the Fed and markets are bracing for potential policy shifts and economic uncertainties in the coming months.

References:
[1] https://www.actionforex.com/live-comments/601838-feds-goolsbee-tariff-impact-milder-than-feared-cuts-still-on-the-table/
[2] https://see.news/trump-calls-fed-chair-powell-average-mentally-person-eyes-34-candidates-for-position