Three Federal Reserve officials expressed similar concerns in their speech on Thursday (February 20), despite occasional differences in their policy stances. They unanimously believe that US inflation is gradually cooling down, which provides the possibility for the Federal Reserve to further cut interest rates. However, President Trump's uncertainty regarding policies such as trade and immigration may have a significant impact on this outlook.

Atlanta Fed President Bostic said his "basic forecast" is that there will be two 25 basis point interest rate cuts later this year, but he also pointed out that "there is considerable uncertainty surrounding this forecast... many things could have a two-way impact on it." Bostic believes that the United States is not facing a new round of rapid inflation, and the low unemployment rate of around 4% indicates that the labor market is still healthy. However, he added that the business community is "generally concerned" about how new tariffs, immigration policies, and regulatory adjustments will affect the outlook.

Since taking office on January 20th, Trump has taken a series of tariff actions or threatened to take action against major trading partners including China, Mexico, and Canada. Bostic said that businesses are concerned that "tariffs may lead to increased costs," but "many businesses believe that if costs rise, they can pass on the increased costs by raising prices. However, inflation has become more stubborn than many people expected, with consumer prices rising 3% year-on-year in January, the fastest increase since June last year.

St. Louis Fed President Mussalem believes that policy changes have increased the risk of inflation potentially stagnating above the 2% target or further rising, which may require the Fed to maintain existing policies for a longer period of time. In the worst-case scenario, if the job market conditions also deteriorate, the Federal Reserve will be forced to make a choice between using high interest rates to combat inflation or using loose policies to provide a buffer for the economy. During his speech at the New York Economic Club, Musa Lem did not explicitly state his baseline forecast for the appropriate number of interest rate cuts this year, but he stated that once inflation is approaching the Federal Reserve's 2% target, interest rate cuts should be made.

Chicago Fed President Goolsby pointed out that, without considering policy, geopolitical, and other uncertain factors, the overall situation (inflation) is still quite good, having dropped significantly from the peak reached in mid-2022. He believes that the tariffs during Trump's first term had little impact on inflation, partly because their scope of application was narrow and included enough exemptions, so the supply network was not affected. However, considering the broader and higher tariffs that Trump is currently formulating, "it depends on how many countries these tariffs will apply to and how large they are. If their impact is close to the impact of the COVID-19 epidemic, then we should be more nervous."

summary

Although Federal Reserve officials generally believe that inflation is cooling down, providing room for interest rate cuts, the uncertainty of the Trump administration's policies on trade, immigration, and other issues has cast a shadow over this prospect. The widespread concerns of the business community and the stubbornness of inflation pose more challenges for the Federal Reserve in future policy decisions. Finding a balance between combating inflation and providing an economic buffer will be a key issue that the Federal Reserve needs to address in the future.