Stagflation Fears Rise
The president of the Chicago Federal Reserve Bank, Austan Goolsbee, is worried about President Trump’s unpredictable tariff policies. He says these policies could trigger stagflation – a nasty mix of slow economic growth, high inflation, and high unemployment. Goolsbee told CNBC that the Fed might need to postpone any decisions on interest rates until things settle down.
He explained that the current uncertainty makes it hard to act. Businesses are also hesitant to make decisions because of the constant changes in policy. Goolsbee used the example of a construction CEO who said their company is basically on hold until things become clearer. The constant policy shifts are preventing businesses from making plans.
Businesses on Hold
Goolsbee emphasized that the Fed is talking to businesses in the Chicago area. They’re hearing consistent feedback: businesses need stable policies to plan for the future. The unpredictable nature of the tariffs is creating a standstill, hindering business activity and investment.
The Fed’s Dilemma
The biggest problem, according to Goolsbee, is that tariffs that raise production costs while also increasing prices are a central bank’s worst nightmare. This is precisely the kind of stagflationary pressure that’s causing concern. Until the tariff situation becomes clearer, the Fed is likely to remain cautious about making any significant interest rate changes.
