Fed’s Goolsbee is out saying:
- If tariffs are avoided by a dealer or otherwise, could return to a situation where rates can come down.
- If politics controls the interest rate, inflation is coming back
- Sometimes central bank has to do what political apparatus doesn’t enjoy.
The economy is shaped by two primary policy tools: fiscal policy and monetary policy. While the Federal Reserve has no authority over fiscal policy, fiscal decisions—such as government spending, taxation, and tariffs—can significantly affect economic outcomes. Tariffs, in particular, can influence inflation and economic growth, which in turn impact employment.
Central banks -like the Fed – tasked with balancing inflation and employment, are therefore indirectly affected by political decisions. If political agendas drive economic policy, Fed Governor Goolsbee warns that the outcome is likely to be inflationary. In such a scenario, the Fed may find its options constrained and unable to act in ways that align with the preferences of political leaders.
- Stagflation the toughest scenario for a central bank, that’s not what we are facing now.
- This is a stagflationary direction, but it’s not inflation
This article was written by Greg Michalowski at www.forexlive.com.