Austin Goolsby, President of the Chicago Federal Reserve Bank, stated that persistent and excessive tariffs could trigger supply chain disruptions again, thereby fueling inflation.
According to Bloomberg on the 5th (local time), President Goolsby warned against the assumption that tariffs would not raise inflation in a speech pre-distributed for the Chicago Fed Auto Conference held in Detroit.
President Goolsby mentioned that supply-side disruptions, including supply chains during the COVID-19 pandemic, were the most important drivers of inflation, and that economic overheating has since appeared. He said, "If inflation rises this year or the slowdown stagnates, the Federal Reserve (Fed) will find it difficult to determine whether inflation is due to economic overheating or tariffs." He added, "Distinguishing this will be crucial for the Fed to decide when to take action."
President Goolsby pointed out, "Looking back at the COVID-19 pandemic, the more complex the supply chain, the longer it took to manage," and noted, "The shock from the supply chain initially seemed temporary but was actually very prolonged." He continued, "Supply-side disruptions can have a significant impact on overall inflation," emphasizing, "That impact is not always minor when viewed at the macroeconomic level. Ignoring it is risky."
Additionally, President Goolsby noted that even considering that tariffs introduced during President Trump's first term may have prompted some companies to relocate production from China, products still produced in China may be difficult to substitute. If hard-to-substitute products are made in China, additional tariffs or supply chain issues in China could worsen inflation.
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