Fed official: The latest tariff policy may still exacerbate inflation and drag down US economic growth.

Federal Reserve Governor Lael Brainard said that the Trump administration's tariff policy could push up inflation and stifle economic growth, despite recent announcements of tariff reductions on China. Speaking at an event in Dublin on Monday, Brainard said, "Trade policy is evolving and may continue to evolve, even as of this morning. Nonetheless, even if tariffs remain near current announced levels, they still appear likely to have significant economic effects." The United States and China have said they will temporarily lower tariffs on each other's products to try to reach a larger trade agreement. The U.S. will reduce tariffs on China from a total of 145% to 30%, while China will reduce tariffs on U.S. products from 125% to 10%. Nevertheless, Brainard pointed out that the average U.S. tariff rate is still much higher than in the past few decades. She added, "If tariffs were significantly higher relative to earlier in the year, the economic effects are also likely to be greater, including higher inflation and slower growth." Chicago Fed President Charles Evans also said in an interview on Monday that the current tariff environment poses higher risks for price increases and slowing growth. He said that the temporary nature of the U.S.-China tariff agreement and the overall higher tariff environment will continue to weigh on the economy. Federal Reserve policymakers kept the benchmark interest rate unchanged for the third consecutive meeting last week. Brainard said that she supported this decision considering the upward risks to inflation, as she believes the Fed's policy stance is somewhat restrictive for the U.S. economy. She said, "With inflation and employment possibly moving in opposite directions in the future, I will closely watch developments when considering the future policy path." During a question and answer session following her speech, Brainard said that the temporary U.S.-China agreement represents "some improvement," but tariffs between the two countries are still "quite high." She still expects prices to rise and the economy to slow down, but not as severely as before. Brainard said, "To some extent, my fundamental outlook may have changed, the degree to which we need to use tools, the amplitude, but the direction hasn't changed." Negative supply shock Brainard said she expects tariffs to amount to a negative supply shock, with prices rising and consumer demand weakening. She said it could also have a "significant impact" on productivity as businesses may reduce investment and take other less efficient measures to cope. She said a decrease in overall demand could also make it harder for job seekers to find work. Brainard said, "This lower overall demand could exert downward pressure on inflation, although it may not be enough to offset the effects of the negative supply shock." Brainard described the U.S. employment situation as "fundamentally stable" and noted that progress in lowering inflation has slowed since last summer. She pointed out that surveys such as the Fed's Beige Book and other indicators show that tariffs have already had an impact on consumer and business behavior, sentiment, and expectations.