Fed’s Barkin Warns Trump Tariffs Could Raise Inflation, But Less Than Pandemic Spike

Federal Reserve Bank of Richmond President Thomas Barkin on Thursday said President Donald Trump’s tariffs could put upward pressure on inflation, amid growing pressure to cut rates.

In prepared remarks ahead of a speech at the New York Association for Business Economics, Barkin said he believes there will be pressure on prices.

He echoed Federal Reserve Chair Jerome Powell’s remarks that the impact of President Trump’s tariffs on prices of goods has not been seen so far, but said he anticipates that “more pressure is coming.” However, he stopped short of giving a more detailed timeline.

“That said, I don’t expect the impact on inflation to be anywhere near as significant as what we just experienced” during the pandemic, Barkin said, crediting it to the Fed’s more restrictive policies.

Other reasons for higher inflation during the pandemic, according to Barkin, were the stimulus payments, higher wages, COVID-era savings, and a frothy market.

“In contrast, today’s consumer is already frustrated by higher price levels and is choosing to trade down and defer discretionary spending,” he said, adding that businesses that try to raise prices could witness pushback from customers.

Earlier in the day, the gross domestic product (GDP) data reflected an increase in inflationary pressures. The gross domestic purchases price index rose 3.4%, while the core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, rose 3.5%, up slightly from the prior estimate.

Last week, the Fed kept the key borrowing rates unchanged in the 4.25% to 4.5% range, underscoring an elevated uncertainty around the economic outlook.

This week, Powell told Congress in a testimony that the Fed is “well positioned to wait” on rate cuts.

“The effects on inflation could be short lived – reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent,” he added, in a clear sign that the Fed is continuing with its wait-and-watch approach.

This was followed by another public criticism of Powell from President Trump, who called him “terrible” and said he has three to four people in mind to succeed the Fed Chair.

Meanwhile, U.S. equities edged up on Thursday as Wall Street digested the early release of first-quarter GDP numbers and latest weekly jobless claims.

At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.61%, while the Invesco QQQ Trust (QQQ) gained 0.64%. Stocktwits data shows retail sentiment around the S&P 500 ETF has been in the ‘extremely bearish’ territory over the past week.

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