The Fed’s top official warns of the danger of inflation in the US after Donald Trump takes office
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A senior Federal Reserve official warned of the threat of renewed US inflation after Donald Trump takes office, even as he forecast solid growth for the world’s largest economy overall.
Richmond Fed President Tom Barkin said Americans are still spending freely, job losses are low and US consumers have begun to push back against higher prices.
But while this combination could bring “more upside than downside in terms of growth” in 2025, Barkin said he also expects “more risk on the inflation side.”
“Wage and product costs could come under pressure,” he said in a speech on Friday. “If they do, given recent experience with inflation, price setters may have more courage to pass on costs.”
Barkin’s comments come just weeks before Trump returns to the US presidency with a promise to raise tariffs and cut taxes and regulation. He also promised to crack down immigration and begin mass deportations.
Some economists have warned that the political program could cause a new wave of inflation in the US.
Other Fed officials have also begun to factor Trump’s return into their projections, U.S. central bank President Jay Powell said last month, including “very tentative estimates of the economic effects of policies in their forecasts.”
Barkin stressed that uncertainty about what Trump will actually do clouds the outlook, but he guessed there could be a “prolonged period of back and forth” as final plans are worked out.
If economic growth were to unexpectedly lag, he said, “the damage could be mitigated by the potential to roll back some of those policies.”
The Fed cut interest rates to 4.25-4.5 percent last month, while officials significantly cut their estimates for rate cuts in 2025 and 2026 and sharply raised their inflation projections.
Most officials now expect just half a point in the value of the cuts this year, down from the full percentage point they saw in September.
Barkin said Friday that the Fed is “well positioned regardless of how the economy plays out.”
“Should employment weaken or inflation re-emerge, we have the tools to respond,” he said.
