Th is photo shows seal of the Board of Governors of the United States Federal Reserve System. It is displayed in the ground at the Marriner S. Eccles Federal Reserve Board Building in Washington. (AP Photo/Andrew Harnik, File)
WASHINGTON, United States — The US Federal Reserve could be in a position to cut rates if President Donald Trump’s tariffs are reduced, a senior US central bank official said Thursday.
Last month, Trump slapped a 10 percent “baseline” tariff on most countries. He also imposed significantly higher rates on dozens of trading partners. But he temporarily paused them days later to allow for trade talks.
READ: What happens to Trump’s tariffs now that a court has knocked them down?
The US Court of International Trade ruled Wednesday that Trump had overstepped his authority with these sweeping tariffs. The court barred them from taking effect. The White House has vowed to appeal.
Speaking in Michigan on Thursday, Chicago Fed President Austan Goolsbee said that, if the tariffs imposed by the White House on April 2 were removed, the Fed could find itself in a strong economic situation. Latest data have shown a low unemployment rate and falling inflation.
Federal Reserve’s dual mandate
The US central bank has a dual mandate. It should act independently to maintain a healthy labor market. It should strive for an inflation rate of 2 percent over the long term. This is mainly by setting its benchmark short-term lending rate.
“If you have stable full employment and inflation going to target, rates can come down to where they would eventually settle.” Goolsbee added that Fed officials expect long-run interest rates to be “well below” current levels.
“So if we can get that out of the air, I do still think that underneath there is a strong dual mandate economy.” Goolsbee is a voting member of the Fed’s rate-setting committee this year.
But, he warned, “the longer we go contemplating really big changes, like some of the ones that have been discussed, the more that fades into the background.”