Chicago Fed President Warns Trump Tariff Threats Could Delay Interest Rate Cut Timeline

The President of the Federal Reserve Bank of Chicago, Charles Evans, said on Friday that President Trump's latest tariff threats have made the Fed's monetary policy more complicated and may also delay the timeline for interest rate cuts. In an interview, Evans pointed out that although he still believes that future interest rate direction will be downwards, in the current context of ongoing changes in trade policy, the Fed may need to stand still and wait for more clear signals to assess the impact of tariff policy on inflation and employment. "All options are on the table. But personally, I think in the current uncertain situation, the standard for taking action needs to be higher," Evans said. "If in the long term, tariff policy has a stagflation effect (meaning economic stagnation combined with inflation), then this is the situation that the central bank is least willing to face." He added, "We need to observe how much specific impact these policies have on prices. I know the public is very averse to inflation." On the day of Evans' speech, Trump once again disrupted the markets by announcing plans to impose a 50% tariff on EU goods starting from June 1, and stating that Apple Inc. (AAPL.US) would face a 25% import tariff if production of iPhones was moved outside the US. Apple Inc. currently predominantly produces iPhones in China, and has some production lines in India. While the increase in iPhone prices may have limited impact on the overall economy, Trump's statements once again highlight the high uncertainty of current trade policy, exacerbating market anxiety. Additionally, investors have already been pushing bond yields up significantly due to concerns about fiscal policy prospects. Federal Reserve officials typically avoid direct commentary on fiscal or trade policy, but must assess their economic consequences. Evans stated that prior to Trump's announcement of tariffs on April 2, he was still optimistic about the outlook for US economic growth. "I still have some hope that we can return to the previous environment, in which case, 10 to 16 months from now, interest rates may be significantly lower than they are now." As a voting member of the Federal Open Market Committee through 2025, Evans will participate in the interest rate decision at the policy meeting on June 17-18. At that time, the Fed will update its economic and interest rate forecasts. The last forecast in March showed that Fed officials expected two interest rate cuts this year. It is widely expected in the market that the Fed will cut interest rates twice by 2025, with the earliest action possibly coming in September. However, Evans did not commit to a specific path. "I don't like to tie my hands in the next meeting, or even in the next six to ten meetings, even slightly," he said. "That is to say, before April 2, I thought we were in a relatively stable state of full employment, and inflation was trending down towards 2%. If these trends continue, interest rates could see a significant decline in the next 12 to 18 months." Currently, the Fed's target range for the federal funds rate is 4.25%-4.5%, which has remained unchanged since December 2024, and the real interest rate level is currently trading at 4.33%.