Federal Reserve Governor Cites Trade Policy Shifts, Import Surges as Economic Growth Challenges

Federal Reserve Governor Adriana Kugler has expressed that determining the potential growth of the U.S. economy has become increasingly challenging. This difficulty arises from the rapid changes in trade policies and the impact of early-year import surges by American households and businesses. Kugler noted that these factors have made it harder for the Federal Reserve to assess economic growth and inflation prospects.

Kugler highlighted that the potential effects of rising import tariffs include price increases and slower economic growth. However, the extent and duration of these impacts remain uncertain due to ongoing negotiations by the Trump administration and the pending status of various tariff measures. She emphasized that the uncertainty surrounding these tariffs has already influenced the economy through advance purchasing, market sentiment, and expectations.

Kugler pointed out that the contraction in U.S. economic output during the first quarter was disrupted by a historic surge in import volumes, while domestic consumption continued to grow. However, she suggested that the increase in domestic purchases was likely driven by households and businesses trying to avoid tariffs, which could set the stage for future consumption declines.

Given the significant uncertainty and volatility surrounding fundamental economic policies, Federal Reserve officials have indicated that they may keep the central bank's benchmark interest rate within its current range of 4.25% to 4.50% until the outlook becomes clearer. Kugler supported the decision to maintain the interest rate at its current level, citing the risk of rising inflation and her belief that the current policy stance is slightly restrictive. She expressed confidence that the current monetary policy stance is well-positioned to address any changes in the macroeconomic environment.