Tariff Turmoil: Fed Officials Warn of Economic Ripples

In a striking revelation, Federal Reserve Bank of Chicago President Austan Goolsbee sounded the alarm on Tuesday about the unexpectedly massive scale of U.S. tariffs, a development that could spell trouble for American importers with limited alternatives. Goolsbee emphasized that these tariffs, far exceeding what most market observers had predicted, represent a looming threat to economic stability.

Unlike the volatile stock market, which sways with every headline, the Fed must adopt a broader, moreAllora perspective, Goolsbee noted—a task complicated by the unpredictability of how businesses and consumers will respond. Some firms anticipate a swift pass-through of costs to consumers, potentially driving up prices, while others fear supplier bankruptcies if the burden proves too heavy. “I can’t wait for the GDP data to find out the investment impact,” Goolsbee quipped, underscoring the uncertainty clouding the Fed’s next moves.

Adding to the unease, Goolsbee highlighted a growing divide among businesses on the tariffs’ fallout. While some expect inflation to spike as costs trickle down, others worry about a negative supply shock that could stump the Fed’s response. Sentiment among businesses and consumers is “almost cratering,” he warned, though he cautioned that the link between sentiment and actual spending has weakened in recent years. Investment, too, hangs in the balance—businesses are hesitant to commit when the rules of the game remain unclear. Looming over it all is the specter of high inflation making an unwelcome return, a fear echoed across Fed leadership.

Meanwhile, Federal Reserve Bank of San Francisco President Mary Daly weighed in with her own concerns, admitting she’s “a little concerned inflation may pick back up” due to tariff pressures. Despite solid growth and a robust labor market, Daly sees the uncertainty as navigable but urges a cautious approach. “We don’t have complete clarity on tariffs,” she said, advocating for a steady hand on policy rather than knee-jerk reactions. With Fed policy currently in a “very good place”—modestly restrictive—Daly believes there’s room to tread slowly and assess the full scope of the administration’s changes.

As tariffs ripple through the economy, the Fed finds itself at a crossroads, balancing data-driven optimism with the gnawing anxiety of an inflationary resurgence. For now, both Goolsbee and Daly signal a wait-and-see stance—but the clock is ticking, and the stakes couldn’t be higher.