U.S. President Donald Trump’s Trade Policies and Inflation

(Reuters) – U.S. President Donald Trump’s trade policies are expected to increase inflation, lower economic growth, and raise unemployment later in the year, according to Federal Reserve Governor Michael Barr, which could complicate policymakers’ decisions on addressing these issues.

Barr stated, “The size and scope of the recent tariff increases are without modern precedent. We don’t know their final form, and it is too soon to know how they will affect the economy.” He expressed concerns that higher tariffs may disrupt global supply chains and increase inflation due to prolonged adjustments for businesses, particularly smaller ones that might struggle to adapt.

He added, “I am equally concerned that tariffs will lead to higher unemployment as the economy slows,” which could place the Federal Reserve in a tough position if both inflation and unemployment rise.

Barr’s remarks align with the observations of Fed Chair Jerome Powell, made after the central bank paused short-term borrowing rate changes and adopted a wait-and-see stance regarding future rate decisions.

Barr emphasized that monetary policy is prepared for adjustments based on unfolding conditions, particularly given the economy’s strength prior to Trump’s tariffs announced on April 2.

He had resigned from his position as the Fed’s vice chair for supervision in February to avoid direct conflict with Trump, who favors reduced regulations across various industries. After his resignation, Barr, appointed by President Joe Biden, pushed for stricter banking regulations during his term.

Trump has nominated Fed Governor Michelle Bowman, who often criticizes Barr, to take over as the central bank’s regulatory chief.

Barr’s speech on Friday was his first in about a year regarding monetary policy, and it comes amid Trump’s discontent with the Fed’s refusal to cut rates, with Trump previously indicating a desire to replace Powell but recently claiming he does not intend to fire him.