(March 21): Federal Reserve Bank of Chicago president Austan Goolsbee said the inflationary impact from tariffs could be transitory if they were limited in scope.

“Imports are only 11% of GDP so one-time tariffs that are not followed by retaliation and that do not spread out of what they’re initially applied to, they’re more likely to be transitory on inflation and monetary policy would look through,” Goolsbee said Friday on CNBC.

So far, that’s now how the situation is playing out in President Donald Trump’s second term. Already he has imposed 20% tariffs on China between two separate actions, along with levies on steel and aluminum imports. There’s more to come on April 2, when the administration says it will announce so-called reciprocal tariffs. Canada, the European Union and China have already retaliated with tariffs of their own or are planning to do so.

The Chicago Fed president added that larger tariffs and retaliations from other countries could force the Fed to respond.

“The bigger they are and the more like supply shocks they are, the harder it is to say that we should look through them,” he said.

Goolsbee is the first Fed official to speak since chair Jerome Powell talked after Wednesday’s policy meeting, in which he revived the word “transitory” to describe his base case for any tariff-related price growth. To be sure, Powell emphasised the Fed “really can’t know” and said officials will have to see how tariffs ultimately play out. Still, the remark conjures up memories of the Fed’s slow response to the pandemic-driven inflation surge.

Fed officials lowered their 2025 growth projections and increased their inflation and unemployment forecasts, according to the median estimate released following Wednesday’s meeting. Powell said tariffs may push out inflation progress, but he still sees price growth cooling over the next two years.

Goolsbee said that hard data still shows the economy is strong and repeated that he expects rates to come down in the next 12 to 18 months, should inflation continue to cool.

Uploaded by Magessan Varatharaja