Minneapolis Federal Reserve President Neel Kashkari cautioned on Monday that supply shocks caused by President Donald Trump’s trade tariffs could fuel inflation while slowing economic growth, raising the risk of stagflation—a troubling economic scenario where inflation and stagnation occur simultaneously.
In a recent interview, Kashkari expressed uncertainty over the Federal Reserve’s ability to adjust interest rates by September, emphasizing that clearer developments on trade agreements and tariff policies were needed before making monetary policy decisions.
“Uncertainty is a key challenge for the Fed as we try to assess the trajectory of inflation and the labor market,” Kashkari stated.
He noted that the full impact of the tariffs had yet to be felt by American consumers, and that the tariffs’ effects were likely to result in stagflationary pressures.
“There’s no question that tariff shocks tend to be stagflationary. The critical factors will be the final levels at which tariffs settle and the duration of this uncertain environment,” Kashkari explained.
However, he added that the stagflationary impact would be more limited if the tariffs were lifted sooner rather than later.
Addressing the recent rise in U.S. Treasury yields, Kashkari suggested that investors were beginning to reevaluate the attractiveness of U.S. assets, with shifting yields possibly signaling a new global financial dynamic.
Uncertainty surrounding Trump’s trade policies intensified after his inauguration, as the administration reversed course on several key tariff decisions. The imposition of steep tariffs on China triggered a bitter trade war, although a partial de-escalation was agreed upon in early May.
Meanwhile, Treasury yields have surged amid growing concerns over the United States’ fiscal health and rising debt levels. These worries were heightened after Moody’s downgraded the U.S. sovereign credit rating in recent weeks.
