Insights 
Chicago Fed President Austan Goolsbee noted that uncertainty is causing businesses to pause on capital spending. He emphasised a need for patience as situations clarify.
Goolsbee stated that the economy remains strong, with imports constituting only 11% of GDP, making certain tariffs potentially temporary if not followed by retaliatory measures.
He mentioned the importance of understanding the duration of tariffs and any consumer impact before considering monetary policy changes.
Fed’s Approach To Supply Shocks
The Fed’s approach will depend on the scale of tariff-related supply shocks. Goolsbee believes in the economy’s resilience and anticipates lower inflation rates within 12 to 18 months.
Goolsbee’s remarks highlight a cautious stance towards economic developments, particularly regarding capital expenditures. Firms appear hesitant, preferring to wait for greater clarity before making long-term financial commitments. This pause reflects broader uncertainty, which could influence expectations in the coming weeks.
Trade policy remains a factor in future inflationary trends. The proportion of imports in overall economic activity suggests that, unless responses escalate, the direct price effects may not last indefinitely. However, the risk of retaliatory actions introduces an element of unpredictability.
Impact On Interest Rates
When considering potential shifts in interest rates, the Federal Reserve remains focused on how supply chains absorb tariff-related costs. If disruptions prove short-lived, policy adjustments may not be necessary. However, prolonged effects could alter expectations, particularly if businesses pass costs to consumers.
Goolsbee maintains confidence in economic stability, expressing a belief that inflation will ease within a defined timeframe. If price pressures begin to slow as anticipated, this could reaffirm existing policy strategies. Yet, adjustments remain possible if external shocks persist.
