"Tariffs Are Like a Layer of Fat Over Abs...
We Need to Remove Them to See the Abs"
Osthan Goolsby, President of the Chicago Federal Reserve Bank, stated on May 29 (local time) that if the United States can end its tariff war through trade negotiations, there is a possibility that the Federal Reserve (Fed) may proceed with an interest rate cut.
According to Bloomberg News, President Goolsby said, "If, after this situation is resolved, we do not impose tariffs or reach some agreement that allows us to avoid tariffs, we can return to the state before April 2 (the date of mutual tariff imposition). If stable full employment is maintained and inflation continues to move toward the target, interest rates could eventually be lowered to a stable level."
The previous day, the United States Court of International Trade (CIT), which is the court of first instance, accepted the request to nullify the mutual tariffs and decided to prohibit the implementation of the tariffs. However, the Trump administration objected to this decision and filed a request to suspend the effect of the ruling, and the appeals court in Washington, DC, issued an order to temporarily halt the execution of the lower court's decision. However, President Goolsby did not comment on the court rulings related to the tariffs.
President Goolsby said that until April 2, the so-called "Liberation Day" when mutual tariffs began, the labor market was stable and inflation was moving toward the Fed's target. Under such conditions, he explained that the benchmark interest rate, currently in the 4.25% to 4.5% range, could have been lowered to around 3%. However, he pointed out that now, due to uncertainty surrounding tariffs, companies are "putting down their pencils and waiting," unable to make key decisions.
President Goolsby compared the economic impact of tariffs to a layer of fat covering abdominal muscles. He said, "You have to remove everything on top to see what's underneath," and added, "I think of the economy in the same way. If we can remove this (the tariffs), there are abs underneath."
On the same day, Mary Daly, President of the San Francisco Federal Reserve Bank, addressed the uncertainty of the trade war at a Rotary Club event held in Oakland, California, saying, "I don't want to make policy decisions based on speculation," and added, "Businesses are still watching the situation, and we need to watch as well."
On this day, President Donald Trump held a face-to-face meeting with Fed Chair Jerome Powell for the first time since taking office. Regarding President Trump's pressure on the Fed to lower interest rates, President Daly responded that this was not the first time the administration had asked the Fed to move in the direction the president wanted. She added that the Fed would do the right thing to achieve its goals of price stability and full employment.
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