US inflation fears rise amid tariff turmoil, warns Fed insider

WASHINGTON: A senior US Federal Reserve official has warned that US President Donald Trump’s unpredictable tariff policies are fuelling fears of rising inflation and slowing economic growth.

The US president’s stop-start tariff rollout has shaken global markets and dented consumer confidence, although it has not yet translated into higher prices for consumers.

"Relative to earlier this year... it appears as though we have seen a marked increase in the upside risks around inflation along with elevated downside risks to the outlook for employment and growth," Kansas City Fed President Jeff Schmid told an event in the city.

"Based on what I have heard from our business contacts, there is a growing possibility that in setting policy the Fed will have to balance inflation risks against growth and employment concerns," he said.

"When contemplating this balance, I intend to keep my eye squarely focused on the outlook for inflation," added Schmid, who is a voting member of the Fed’s rate-setting committee this year.

Schmid also warned of the potential for tariffs to have a long-lasting impact on inflation.

"While in theory, tariffs may have only temporary effects on inflation... I would be hesitant to take too much comfort from theory in this environment," he said.

"I am not willing to take any chances when it comes to maintaining the Fed’s credibility on inflation," he added.

Financial markets see a roughly 80 percent probability that the Fed will make no change to its interest rate next month, holding it at between 4.25 percent and 4.50 percent, according to data from CME Group.

‘Compelling’ signal needed

Speaking later on Thursday, Boston Fed President Susan Collins said it was possible that underlying inflation could rise "well above" 3.0 percent this year due to tariffs, adding that it seemed appropriate to keep interest rates unchanged for the time being.

"Given the likely evolution of inflation and real activity and the related risks to both, policy could face challenging trade-offs," she told a conference in Washington, according to prepared remarks.

"It might still be appropriate to lower the federal funds rate later this year," said Collins, who is also a voting member of the Fed’s rate-setting committee this year.

"But renewed price pressures could delay further policy normalisation, as confidence is needed that the tariffs are not destabilising inflation expectations."

"With elevated inflation, the signal would have to be compelling to take pre-emptive actions against the risk that activity weakens by more than expected," she added.