President Donald Trump’s recent tariff threats—including a proposed 50% increase on European Union imports and demands for Apple and Samsung to manufacture phones in the United States—are adding complexity to global trade and are expected to delay Federal Reserve interest rate cuts, according to Chicago Federal Reserve President Austan Goolsbee.
Speaking on May 23, Goolsbee highlighted how the administration’s escalating trade tensions have complicated monetary policy decisions and likely postponed any near-term adjustments to interest rates.
Trump’s repeated tariff threats underscore the unpredictable nature of U.S. trade policy and have intensified global concerns over fiscal policy. These worries have contributed to a sharp rise in bond yields, reflecting investor anxiety.
Since April 2—dubbed “Liberation Day” by some—markets have been caught in a volatile cycle driven by tariff announcements and trade uncertainties. This turbulence has prompted many economists and market analysts to warn of a potential recession in the coming months, while others predict a period of stagflation marked by slow growth and rising prices.
Impact of Tariffs on Interest Rates
While central bankers typically avoid direct involvement in fiscal and trade disputes, they must respond to their economic consequences. The proposed tariffs on EU goods were initially set to take effect on June 1.
In an interview with CNBC, Goolsbee noted that the Federal Reserve is likely to hold off on adjusting rates as it assesses how shifting trade policies influence inflation and employment.
On the same day, Trump rattled markets by announcing plans for 50% tariffs on EU products starting June 1 and a 25% tariff on iPhones not manufactured in the U.S. Apple’s iPhones are primarily made in China, with some production in India. Although the higher cost of iPhones may have a limited macroeconomic impact, the broader uncertainty surrounding fiscal policy has contributed to rising bond yields.
Trump later postponed the EU tariffs to July 9, adding further uncertainty.
Fed Awaits Clarity on Trade Policy
Asked about the potential impact of these tariff proposals during an appearance on CNBC’s “Squawk Box,” Goolsbee said, “Over the longer run, if they’re putting in place tariffs that have a stagflationary impact… then that’s the central bank’s worst situation.”
He added, “So I think we’ll have to see how big the impacts on prices are. I know people hate inflation.”
Currently, the Fed’s benchmark overnight lending rate stands between 4.25% and 4.50%, a range that has held steady since December. The actual rate recently traded around 4.33%.
Despite recent market jitters, Goolsbee remains optimistic about the longer-term economic outlook. “I’m still… hopeful that 10 to 16 months from now, rates could be a fair bit below where they are today,” he said. Goolsbee is a voting member of this year’s Federal Open Market Committee (FOMC), which will meet on June 17-18.
At the upcoming meeting, the committee is expected to update its economic forecasts and interest rate projections. In March, the FOMC signaled two rate cuts for the year. Market consensus currently anticipates the first rate cut in September, with two reductions overall.
Given ongoing trade uncertainties, Goolsbee refrained from making a firm prediction about the Fed’s next moves.
