The Federal Reserve's Kashkari: Tariff negotiations may take months or years, supports holding steady.

On 27 May, Minneapolis Fed President Kashkari reiterated the need to remain cautious amid uncertainty over the trade conflict, noting that it is “critical” to defend inflation expectations. Speaking at a Bank of Japan event in Tokyo on Tuesday, he said there was a “useful debate” among policymakers on whether to view the inflationary impact of US President Donald Trump’s tariffs as a temporary shock or as a long-term condition. In his speech, Kashkari noted that tariff negotiations could take months or years to fully conclude, that tariffs on intermediate goods would take time to pass through, and that the risk of de-anchoring inflation expectations could increase over time. “I put defending long-term inflation expectations first,” he said. The Fed has kept interest rates unchanged at three meetings so far this year and is expected to do the same at its next meeting in June this year. This follows a total of one percentage point rate cuts by the Fed in the last three months of last year. Economists generally expect tariffs to lead to inflation, but their prevalence depends on the size of the tariffs and the degree of retaliation from other countries. Tariffs could drag down economic growth and lead to layoffs, which could lead to so-called “stagflation,” leaving the Fed in a dilemma: whether to keep interest rates high to curb inflation, or cut rates to support a sluggish economy. (Golden Ten)