MNI BRIEF: Fed's Barkin-Inflation, Joblessness Might Rise

Both U.S. inflation and unemployment could rise if tariffs continue to apply and businesses are able to pass through cost increases, Federal Reserve Bank of Richmond President Thomas Barkin said Friday. 

Tariffs will increases cost for firms, some of which can be avoided if currency rates move or if businesses substitute out of certain goods. While firms will try to pass on these costs, many retailers have told the Fed consumers are tapped out and aren't as willing to accept price increases, Barkin told the Loundoun County Chamber of Commerce. 

"Should tariffs continue to be applied and passed through, there’s risk on the price side and employment side," he said. But because of uncertainty over how trade policy will evolve, businesses and the Fed are on hold, he said. The Fed has made no change to interest rates so far this year.  

Barkin added consumer spending continues to be resilient and uncorrelated to souring sentiment. "GDP is modestly negative but core GDP was every bit as good as it was last year," he said. Inflation is down to roughly 2.5% and unemployment is at around its natural low. "If you just look at the numbers, you’d say this is an economy headed to the right place." (See: MNI INTERVIEW: Tariffs' Inflationary Impact Will Last - Koenig)