The Federal Reserve will wait and see how President-elect Donald Trump’s policies on tariffs and immigration are implemented before projecting their economic effects, according to Neel Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis.
Regardless, the central bank’s decision-making will remain independent, Kashkari added Nov. 12 at the Yahoo Finance Invest conference.
“Whatever Congress and the executive branch decide, we will then model it into our analysis of the economy, analysis of the economy’s potential, and outlook of the labor market and inflation, but until those policies are decided upon, until they become clear, we can’t do anything, so we’re just going to wait and see,” Kashkari said.
During the campaign, Trump called for establishing a universal baseline tariff on all U.S. imports of 10% to 20% and a 60% tariff on all U.S. imports from China.
When asked about the proposed tariffs’ impact on the U.S. economy, the Minneapolis Fed leader had a similar wait-and-see response.
“Where it becomes complicated is how the other country responds,” he said. “So if there’s a tit-for-tat — and increase in tariffs from the U.S., a response from other countries and it goes back and forth — then you could imagine a longer-term inflationary impact.”
Kashkari is pleased with the progress on inflation but said he’s not declaring victory. In September, the consumer price index rose 2.4% year over year, above the Fed’s 2% target. The CPI reading for October will be released Nov. 13.
“Ultimately, we’re going to get back down to 2% inflation,” Kashkari said. “It may take a year or two to get all the way there given some of these housing dynamics, but the trends so far are encouraging.”
At its Nov. 7 meeting, the Federal Open Market Committee approved a quarter-point interest rate cut. Another quarter-point cut is expected in December.
When asked how the Fed would respond if Trump pressured it to lower rates faster or deeper than it deems appropriate, Kashkari said the central bank will remain independent.
“I’m confident that we will continue to focus on achieving our economic goals and not responding to whatever pressures might be coming from Washington,” he said.
