By Howard Schneider and Ann Saphir
WASHINGTON (Reuters) - Two Federal Reserve officials seen as representing contrasting sides of the policy spectrum said on Friday they'll be watching the impact of Trump administration policies on inflation as they assess how much further interest rates should fall.
In separate comments, Fed Governor Michelle Bowman and Chicago Fed President Austan Goolsbee both voiced an underlying faith that inflation is likely to continue to decline this year and allow further rate cuts, even if the timing is uncertain.
But both said policies expected from the Trump administration have added uncertainty about the path of inflation and therefore the path of the Fed's policy rate.
Bowman is widely seen as representing the hawkish side of the Fed policy spectrum, more concerned about inflation, while Goolsbee has expressed more concern over the job market, though both are committed to the Fed's 2% inflation target.
Expected Trump policies have included potential limits on labor supply through deportation of immigrants and higher prices through import taxes.
Administration officials have said they don't think tariffs will add to inflation, and indeed the Fed during Trump's first term ended up cutting its policy interest rate after growing concern that his tariff and trade actions were slowing economic growth.
The economy is now in a different place, however, with memories of the pandemic inflation shock still recent, output and employment considered at or beyond capacity, and businesses having shown a willingness to at least try to pass along higher costs.
Bowman, appointed to the Fed by Trump in his first term, said in remarks to a New England business group that she supported the Fed's decision this week to hold the policy rate of interest rate steady in the range of 4.25% to 4.5% in order to be sure inflation will continue to improve and gain more certainty about the administration's plans.
Along with watching incoming official statistics on inflation and jobs, Bowman said the central bank should move gradually now "to get clarity on the administration’s policies and their effects on the economy.
"It will be very important to have a better sense of the actual policies and how they will be implemented, in addition to greater confidence about how the economy will respond," Bowman said.
Investors currently expect the Fed to reduce its policy rate by a quarter of a point at its June meetings and again later in the year.
Bowman said she sees risks that inflation may prove stronger than expected, with ongoing economic growth, rising wages, geopolitical risks, and financial markets and business sentiment that may unleash pent up demand.