MNI BRIEF: Goolsbee: Not Yet Time For Fed To Act

Chicago Fed President Austan Goolsbee said Thursday it's not time for the Federal Reserve to act one way or another as economic data are still solid, but warned tariffs could raise inflation more persistently if they apply to intermediate goods, other countries retaliate and businesses and consumers change their behavior.  

"There’s one school of thought that says if you see a recession coming, you should lower rates. If you see inflation coming, you should raise rates. If there’s a lot of uncertainty, you should wait and do nothing. That’s the iron triangle of uncertainty that we need to sort out," he told the Economic Club of New York.   

With imported goods only about 11% of GDP, "there is an argument that if the tariffs don’t last too long, if the rates aren’t too high, in a way it wouldn’t be material to the overall economy," he said. "What makes me nervous is if tariffs jump out of their 11% lane." 

Business and consumer sentiment surveys are cratering and that could drag down investment and spending, he said. If trading partners retaliate, "you've just doubled the impact of tariffs," he said. "If people start freaking out, the freak-out channel is a well recognized impact of any policy." 

A rise in longer run market-based measures of inflation expectations would raise alarm bells, but that hasn't happened, he said. (See: MNI INTERVIEW: Tariffs Put Fed In Stagflationary Bind - Ex-CEA)