Chicago Fed President: Trump's new tariffs may push up inflation and disrupt rate-cutting process.

Chicago Fed President Gulzpi said on Friday that President Trump's latest tariff plan has made the inflation outlook more complicated and has made it more difficult for him to support Trump's requested rate cuts. In recent months, the market's concerns about tariffs driving up prices have significantly eased since Trump suspended bilateral high tariffs in April. This also paved the way for the Fed to cut rates again in the future. However, with the Trump administration announcing tariffs of 35% on some Canadian imports and up to 50% on Brazilian goods starting on August 1, new inflation concerns have reemerged. Gulzpi pointed out that these measures may force the Fed to maintain a "wait-and-see" stance until the policy outlook becomes clearer. "I hope that when we go back to talk to businesses, they won't say 'this feels like April 3rd again,'" Gulzpi said, "but I'm not sure because all of this has just happened." Since September last year, the Fed began cutting rates, believing that substantial progress had been made in combating high inflation after the COVID-19 pandemic. However, the brief inflation rebound at the beginning of this year, as well as uncertainties in trade, immigration, and fiscal policy changes, have kept the Fed from taking any action to adjust the benchmark interest rate, which has remained in the range of 4.25% to 4.5% since December last year. Gulzpi is one of the officials in the Fed who has recently been more supportive of cutting rates again, along with Board members Woler and Bauman. However, he also stated that due to the complexity of Trump's latest tariff measures, the Fed needs to be more cautious. "We keep adding new variables to this already chaotic situation, making it harder to predict whether prices will actually rise," Gulzpi said, "it's like throwing more sand into the air." It is worth noting that inflation data has been relatively mild since Trump's announcement of major tariffs on April 2. According to the Fed's preferred inflation gauge, the 12-month inflation rate as of May was 2.3%, very close to its long-term target of 2%. This number originally provided a basis for further easing. However, there is still intense debate within the Fed about whether the price increases driven by tariffs are a one-time shock or will lead to a more sustained structural inflation. If it is the latter, the Fed may have to maintain higher rates for a longer period to contain inflation risks. Meanwhile, the overall performance of the U.S. economy remains relatively stable. The unemployment rate is around 4%, economic activity has slowed but not significantly worsened, which has led Fed Chair Powell and several officials to advocate for a "patient strategy" and avoid hasty rate cuts. However, Trump's public criticism of Powell and the Fed, as well as his insistence on low interest rate policies, make the Fed's direction more complex. Trump will nominate the next Fed Chair next year, and the market is currently speculating that he will choose a candidate who leans towards loose policies. White House Council of Economic Advisers Director Kevin Hassett, Treasury Secretary Scott Besent, current Fed Board member Woler, and former Fed Board member Kevin Wash are all seen as potential frontrunners. On Thursday, the White House further pressured Powell to explain the overspending on renovations at the Fed headquarters in Washington. In the face of external political pressure, Gulzpi stated that the Fed will maintain its independence. He said, "I still have a lot of confidence that the culture of the Fed is one of taking responsibilities seriously, and everyone understands that independence from political interference is crucial for our work."