(Reuters) -Federal Reserve Governor Adriana Kugler said on Tuesday that with U.S. import tariffs significantly larger than expected and likely to put upward pressure on prices, the central bank ought to keep short-term borrowing costs unchanged until inflation risks recede.
Kugler said she is carefully watching how the Trump administration’s trade, immigration, fiscal policy and regulatory changes impact inflation and the labor market, but the “significantly larger” than expected tariffs clearly had her attention.
“I am also monitoring any risks to the outlook, especially upside risks on inflation or downside risks to employment,” Kugler said in remarks prepared for delivery to the Heller-Hurwicz Economics Institute at the University of Minnesota.
Fed policy is “well positioned” to respond to changes in the economy, she said. “Thus, I will support maintaining the current policy rate for as long as these upside risks to inflation continue, while economic activity and employment remain stable.”
The Fed next meets to decide policy in two weeks, and policymakers have telegraphed their intention to leave the policy rate at 4.25%-4.50% while they wait for more clarity on the extent of the tariffs and their likely timing and economic impact.
Kugler noted that the U.S. economy likely slowed in the first quarter, with a possible boost from some “front-loading” of purchases as households and businesses tried to get ahead of looming tariffs.
Recent financial market volatility was also a concern, she noted. “If financial conditions were to tighten persistently, that could weigh on growth in the future.”
The labor market is solid and broadly in balance, but progress on inflation has slowed and remains above the Fed’s 2% goal, she said. Short-term inflation expectations have risen, but longer-term expectations remain anchored, she added. “And I hope they continue in that way.”
With uncertainty high, she said, the Fed must keep a sharp eye on real-time data to detect any economic changes as soon as possible, since it takes time for any interest rate adjustments to make an impact on actual conditions.
(Reporting by Ann Saphir; Editing by Richard Chang)
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