Minneapolis Fed President Kashkari said on Sunday that if global trading partners retaliate, President-elect Trump's tariff proposal could exacerbate long-term inflation.
Kashkari said that one-time tariffs would not have a long-term impact on inflation. "The challenge is that if there is a situation of tit-for-tat, where one country imposes tariffs in response, it will escalate. That's the more worrying part, to be honest, and more uncertain."
During his first term, Trump imposed a series of import taxes on major Asian nations, triggering a trade war that led the country to retaliate by imposing a series of tariffs on the USA.
One of President Trump's main economic proposals for his second term is to impose universal tariffs on all imported products from all countries.
Economists, Wall Street analysts, and industry leaders have repeatedly expressed concerns about the inflationary impact of this aggressive trade approach, especially as inflation has just started to drop from its peak during the pandemic.
Kashkari said: "We have made great progress in reducing inflation, I mean, I don't want to declare victory yet. We need to finish this work, but we are on a good path now."
The Fed cut interest rates for the second consecutive week last week as inflation approaches the 2% target level, continuing efforts to ease monetary policy. Kashkari said he expected another rate cut in December, but this will depend on the "data situation" at that time.
As for other major policy proposals from Trump, such as the comprehensive immigration expulsion plan, Kashkari pointed out that the inflation threat remains unclear, so the Federal Reserve continues to adopt a "wait-and-see" attitude before adjusting its policies.
Trump and his supporters, such as billionaire Musk, also openly stated that they hope the president will provide opinions on the Federal Reserve's policy decisions. The Fed considers its political independence as a core feature, enabling it to formulate monetary policy based solely on the health of the US economy rather than electoral motives.
But Kashkari said he is not concerned about political factors influencing the Fed's decisions.
He said, "I am confident that we will continue to focus on our economic employment. This should be what we are doing and what we are doing."
