New York Fed President Williams issued a heavy warning last Friday (April 11) that the Trump administration's high tariff policy could trigger a "triple crisis" of soaring inflation, rising unemployment, and economic slowdown. In his speech at the Puerto Rico Chamber of Commerce, he bluntly stated that due to tariffs and immigration policies, the real GDP growth rate in the United States may plummet to less than 1% in 2024, the unemployment rate may climb from 4.2% to 5%, and inflation may soar to 4%, far exceeding the Federal Reserve's target of 2%.

Inflation Gunpowder Bucket: Tariffs Ignite Price Crisis

Williams predicts that the new tariffs will push the PCE price index (the Federal Reserve's core inflation indicator) to jump from the current 2.5% to 3.5% -4%. Although long-term inflation expectations are still stable, he emphasized the need to guard against expectations becoming "off anchor" and avoid repeating historical mistakes. The rise in short-term inflation expectations has caused market anxiety, and the primary task of the Federal Reserve is to ensure that long-term inflation expectations are firmly locked in around the 2% target.

Economic stall: sudden cooling of growth engine

Compared to the steady performance in 2023, the economy is facing a "sudden brake" in 2024. The decrease in immigration has led to a slowdown in labor force growth, further weakening economic potential. At the same time, the trade uncertainty brought about by tariff policies is disrupting global supply chains and suppressing business investment confidence. Williams specifically pointed out that the actual GDP growth rate may significantly slow down from last year's steady level to less than 1%, which is much lower than the market's general expectation.

Stagflation shadow? The Federal Reserve urgently draws the line

Faced with concerns about the resurgence of stagflation in the 1970s, Williams firmly denies any similarity between the current economic situation and that dark history. As an economist who experienced the 1970s, he vividly remembers the terrifying scene of unemployment and inflation rates both exceeding 10% at that time. Williams emphasized that the Federal Reserve now has more sophisticated policy tools and clearer target positioning, and is fully capable of avoiding a repeat of history by maintaining a moderately restrictive interest rate policy.

Summary: The Federal Reserve's "walking the tightrope" strategy

Williams emphasized that the current monetary policy is in a state of "precise balance". In the short term, the Federal Reserve will maintain high interest rates to suppress inflation; In the long run, policy makers will maintain sufficient flexibility to adjust their strategies in a timely manner based on changes in economic data. We are closely monitoring the situation, "he said," but we will never let historical tragedies repeat themselves. "This economic storm triggered by tariffs may become the biggest challenge to test the wisdom of the Federal Reserve.