US Fed could cut rates if tariffs reduced: official

WASHINGTON: 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, and imposed significantly higher rates on dozens of trading partners – only to temporarily pause them days later to allow for trade talks.

The US Court of International Trade ruled Wednesday that Trump had overstepped his authority with these sweeping tariffs, and 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, with a low unemployment rate and falling inflation.

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The US central bank has a dual mandate to act independently to maintain a healthy labor market and to strive for an inflation rate of two percent over the long term, 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,” he said, adding 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,” added Goolsbee, 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.”