- Official Fed warns that inflation could temporarily reach 5%.
- Said that prolonged prices can lead to a sharp increase in unemployment.
- Said that the negative effects on work and production can last much longer.
Washington: A senior US central bank official warned that interest rates should have to be reduced more strongly than expected if President Donald Trump’s steep prices on imports remain in place for a long period, as they may slow down the economy and increase unemployment.
Trump unveiled radical rates in early April against most American business partners in order to tackle the practices that Washington considers unfair, including a 10% global tax and more specific rates in the country, especially on China.
The higher rates in countries other than China have been interrupted for 90 days, but have pushed the average American rate rate to 25%.
Even with the break, the overall average remains around 25% due to high pricing rates imposed on Chinese products.
If this level is maintained for a certain time, “economic growth is likely to slow down a ramp and considerably increase the unemployment rate,” said the governor of the federal reserve, Christopher Waller on Monday.
Waller expects high inflation “would be temporary”, but noted that it could increase up to five percent in the short term, and said that the effects “on production and employment could be more sustainable”.
“If the slowdown is important and even threatens a recession, then I would expect to promote the reduction of the FOMC policy rate earlier, and to a greater extent than I had thought before,” he said, referring to the Fed rate fixing committee.
He added that with an economy slowed down quickly in this scenario, the risk of recession would probably prevail over the risk of climbing inflation.
The American central bank has held the stable interest rates of 4.25 to 4.5% since the start of this year.
On Friday, the Trump administration temporarily excludes products such as smartphones, laptops and flea creation equipment for “reciprocal prices”, providing a stay of the world rate of 10% and the 125% levy on the goods of China.
But many others remain, including an earlier tariff of 20% on imports from China on its presumed role in the fentanyl supply chain, and samples on imports of steel and aluminum.