Fed's Kugler warns of worse-than-expected impact of tariffs

by Reade Pickert

Federal Reserve Governor Adriana Kugler said tariffs will likely put upward pressure on prices and have a bigger economic effect than previously expected.

Kugler repeated that she supports holding borrowing costs steady until inflation risks abate, and while economic activity and employment remain stable.

“The economy is facing heightened uncertainty, with upside risks to inflation and downside risks to employment,” Kugler said Tuesday in remarks prepared for an event at the University of Minnesota in Minneapolis.

“This month, we learned that the tariff increases are significantly larger than previously expected,” she said. “As a result, the economic effects of tariffs and the associated uncertainty are also likely to be larger than anticipated.”

President Donald Trump announced sweeping tariffs on US trading partners earlier this month, alongside duties exceeding 100% on China. While considerable uncertainty remains around the levies, economists generally expect them to weigh on economic growth and boost inflation.

In a question-and-answer session following her prepared remarks, Kugler said she didn’t believe recent market turmoil was a sign the public had lost confidence in the central bank.

“The uncertainty is not coming from us,” Kugler said. 

Kugler focused much of her speech on monetary policy transmission. She highlighted the time it takes for Fed policy to work through the economy, adding that such lags are key to why officials must be proactive in understanding the impact of different shocks.

“It is important for monetary policymakers to broadly examine all available information, including market-based measures, surveys and anecdotal reports, to understand what is happening in the economy as early as possible because, as I discussed, it takes time for policy to have an impact,” Kugler said.

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