Federal reserve could lower interest rates if tariffs don’t raise prices

Chicago Federal Reserve President Austan Goolsbee recently shared that the central bank might reduce interest rates if tariffs don’t cause prices to spike. Speaking at a Milwaukee event, he noted that the economic impact of tariffs has been less severe than expected so far. This has kept inflation in check, which is good news for the economy. Goolsbee explained that before April 2, the economy was on a strong path with stable job growth and inflation nearing the Fed’s 2% goal.

If tariffs don’t push prices up, he believes the economy could return to this “golden path,” allowing the Federal Reserve to consider cutting rates. However, he didn’t specify when these cuts might happen, as the effects of tariffs remain uncertain. He also mentioned that businesses are hesitant to make big moves due to unclear trade policies, which adds complexity to the Fed’s decisions. While some worry tariffs could lead to higher prices and slower growth, Goolsbee remains cautiously hopeful.

If inflation stays low, the Fed could lower rates to support the economy. Federal Reserve Chair Jerome Powell and other officials are also watching tariff impacts closely. They expect two rate cuts in 2025 but want clearer signs on how trade policies will affect prices before acting. For now, the Fed is keeping rates steady at 4.25%-4.5%, balancing caution with optimism about the economy’s strength.