MNI: Fed's Barr Says Monetary Policy In A Good Position

Federal Reserve Governor Michal Barr said Friday the Trump administration's tariff policies are likely to lead to higher inflation and lower growth this year, and monetary policy is in a good position to adjust as conditions unfold.

"Given the economy’s strong starting point and the progress we have made in bringing inflation back toward our 2% objective, monetary policy is in a good position to adjust as conditions unfold," Barr said in a speech about artificial intelligence and the labor market. "Meanwhile, we will also be closely monitoring how technologies like artificial intelligence are being integrated into economic activity and analyzing the implications for how the economy will evolve." 

Barr said he is concerned that tariffs will lead to higher unemployment as the economy slows. "The FOMC may be in a difficult position if we were to see both rising inflation and rising unemployment." (See: MNI POLICY: Fed Sees Jobs On Shakier Ground Amid Tariff Shocks) 

The Fed governor said he expects higher inflation in America and lower growth starting later this year, but he is unsure how supply chains will adapt to substantial tariffs. 

"Faced with substantial tariffs, businesses will likely change how they source intermediate inputs, and it will take time and investment for them to reroute their distribution networks. Conversely, global trade networks may change rapidly, and some suppliers may not be able to adapt quickly enough to survive these changes." 

Still, while "the size and scope of the recent tariff increases are without modern precedent, we don’t know their final form, and it is too soon to know how they will affect the economy," he said in Reykjavík, Iceland. 

The U.S. economy entered this quarter in a relatively strong position. The unemployment rate has been low and stable, and the disinflationary process has continued on a gradual, albeit uneven, path towards our 2% objective, Barr said. "Private domestic final purchases have been solid. Overall, the economy has been resilient."