Fed’s Bostic Warns Tariffs Risk Prolonged Inflation, Justifying Rate Pause

A professional portrait of Raphael Bostic, smiling warmly and posing with his hand under his chin, wearing a dark suit and red tie against a blue background with a blurred institutional logo. A professional portrait of Raphael Bostic, smiling warmly and posing with his hand under his chin, wearing a dark suit and red tie against a blue background with a blurred institutional logo.
Raphael Bostic, President and Chief Executive Officer of the Federal Reserve Bank of Atlanta. Source and credit: atlantafed.org.

ATLANTA, GA – A top Federal Reserve official issued a stark warning on Thursday regarding the economic effects of President Donald Trump’s trade policies, suggesting that tariffs could lead to a prolonged period of elevated inflation rather than a simple, one-time price increase. Atlanta Federal Reserve President Raphael Bostic cautioned that the central bank should maintain its current patient stance on monetary policy, resisting calls to lower interest rates until the full impact of the tariffs on the U.S. economy becomes clearer.

Speaking at a lecture in Frankfurt, Germany, Bostic articulated his belief that the consequences of the tariffs will be more drawn out than conventional economic models might predict. He anticipates that changes in U.S. trade policy, combined with other global geopolitical events, will result in “a longer period of elevated inflation” that could persist for a year or more, diverging from the standard expectation of “a short and simple one-time shift in prices.”

His comments provide strong backing for Federal Reserve Chairman Jerome Powell, who has faced increasing pressure from President Trump to loosen monetary policy and cut interest rates. Bostic, who is not a voting member of the central bank’s rate-setting Federal Open Market Committee (FOMC) this year, stated that the current climate of economic uncertainty is “no time for significant shifts in monetary policy.”

Bostic acknowledged that recent inflation data from March, April, and May showed price levels hovering only slightly above the Fed’s 2% target. However, he argued this data might be misleading. He suggested that the stable numbers likely reflect “firms’ strategies to delay substantive price increases” until the final tariff rates are officially set, rather than an indication that the economy has successfully absorbed the price pressures.

The Atlanta Fed chief’s remarks came on the same day the government released a strong June unemployment report, which showed the economy added 147,000 jobs and the unemployment rate fell to 4.1%. This robust labor market data adds another layer of complexity for the Fed as it weighs its next move. The next FOMC meeting is scheduled for July 29-30.

The Federal Reserve has kept interest rates steady since December 2024, when it cut its target range by a quarter of a percentage point. Earlier in the week, Chairman Powell confirmed that ongoing concerns about the tariffs were a key reason the central bank paused what had appeared to be a rate-cutting cycle. Powell stated that he believes the Fed would have continued to lower interest rates had the tariffs not been implemented, noting, “we went on hold when we saw the size of the tariffs.”

Bostic’s call for patience was echoed by his colleague, Richmond Federal Reserve President Tom Barkin. In a recent interview, Barkin compared the Fed’s current challenge of assessing the economy to “driving through fog,” a metaphor he has used to describe the difficulty in predicting the effects of the tariffs.

“You don’t know what the impact of policy is going to be on the economy,” Barkin explained. “And so long as there’s no urgency from the bigger environment, I think one does what one does when you drive through fog, which is go slowly.”

Meanwhile, a key deadline is approaching for President Trump’s trade agenda. The 90-day pause on the sweeping “reciprocal tariffs” announced in April is set to expire on July 9. Treasury Secretary Scott Bessent indicated Thursday that he anticipates “a flurry of deals” to be finalized before the deadline.

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