Odaily News Minneapolis Federal Reserve President Neel Kashkari reiterated the need to remain cautious amid uncertainty over trade conflicts, noting that defending inflation expectations is "critical." He told a Bank of Japan event in Tokyo on Tuesday that there is a "healthy debate" among policymakers about whether the inflationary impact of U.S. President Trump's tariffs should be viewed as a temporary shock or as a long-term condition. In his speech, Kashkari noted that tariff negotiations may take months or years to fully conclude, that taxes on intermediate goods will take time to pass through, and that the risk of inflation expectations being unanchored may increase over time. "I put the defense of long-term inflation expectations first," he said.
The Fed has kept interest rates unchanged at three meetings so far this year and is expected to do so at its next meeting in June. Prior to that, the Fed cut interest rates by a total of one percentage point in the final three months of last year. Economists generally expect tariffs to lead to inflation, but how widespread it will be depends on the size of the tariffs and the extent of retaliation from other countries. Tariffs could drag on economic growth and lead to layoffs, which could lead to so-called "stagflation," putting the Fed in a dilemma: whether to keep interest rates high to curb inflation or cut rates to support the sluggish economy. (Jinshi)