Fed’s Michael Barr Expects Trump Tariffs To Push Inflation Higher, Slow Growth, And Raise Unemployment

Federal Reserve Governor Michael S. Barr said on Friday that the Trump administration’s tariff policies are likely to push inflation higher in the U.S., slow growth worldwide starting later this year, and raise unemployment, putting the central bank’s rate-setting committee in a tricky position.

Barr also pointed out that higher tariffs could disrupt global supply chains and create persistent upward pressure on inflation.

“Faced with substantial tariffs, businesses will likely change how they source intermediate inputs, and it will take time and investment for them to reroute their distribution networks. Conversely, global trade networks may change rapidly, and some suppliers may not be able to adapt quickly enough to survive these changes,” he said in his prepared remarks at the Reykjavík Economic Conference 2025.

The Fed Governor explained that small businesses are likely to bear the brunt of the tariff policies, given that they are less diversified, have limited access to credit, and hence are more vulnerable to adverse shocks.

Barr’s comments come as the Fed decided to keep rates unchanged despite pressure from President Donald Trump to adjust the policy. In its latest policy, the Federal Open Market Committee stated that uncertainty about the economic outlook has increased further.

Meanwhile, Barr also argued that the size and scope of the recent tariff increases are without modern precedent. “We don't know their final form, and it is too soon to know how they will affect the economy,” he said.

On Friday, benchmark U.S. indices were set for a positive start after the U.S. signed its first trade deal with the U.K., potentially a signal of easing trade tensions. The SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500, traded 0.25% higher in the pre-market session, while the Invesco QQQ Trust, Series 1 (QQQ), which tracks the Nasdaq Composite, was up 0.38%.

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