By Michael S. Derby
(Reuters) -Boston Federal Reserve President Susan Collins said on Monday the type of tariffs announced by the Trump administration may drive up inflation, while noting there's a lot of uncertainty and no urgency on the part of the U.S. central bank to change the direction of monetary policy.
"The kind of broad-based tariffs that were announced over the weekend, one would expect to have an impact on prices," Collins said in an interview with CNBC, adding that "with broad-based tariffs, you actually would not only see increases in prices of final goods, but also a number of intermediate goods."
Collins, however, noted there's not a lot of experience on how mega tariffs impact the economy in the modern age.
Trump on Saturday slapped tariffs on the three largest U.S. trade partners, announcing a 25% duty on goods from Mexico and Canada and an additional 10% duty on imports from China. Canada retaliated with its own tariffs on a range of U.S. products. On Monday, Trump said he was suspending the tariffs on Mexico for a month after President Claudia Sheinbaum agreed to send soldiers to the U.S.-Mexican border to curb drug trafficking.
Economists broadly expect the tariffs will push up inflation and depress growth, but are struggling to measure to what extent, given the fluidity of the situation.
'NO URGENCY'
The Federal Reserve, which cut interest rates by a full percentage point last year, held its policy rate steady last week, flagging uncertainty in the economic outlook. Fed Chair Jerome Powell said after the meeting that when it comes to tariffs, "we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be."
Collins, who is a voting member of the Fed's rate-setting committee this year, told CNBC that Fed policy is well-positioned to deal with what lies ahead for the economy. She noted that "it's really appropriate for policy to be patient, careful, and there's no urgency for making additional adjustments, especially given all of the uncertainty, even though, of course, we're still somewhat restrictive" with the current stance of interest rates.
She left the door open to further rate cuts, saying "I certainly would see additional ... normalization, in terms of what the policy stance is," without providing a time frame.
Collins said the ultimate policy response by the Fed to the impact of the tariffs is unclear, though she noted it might be possible for central bank officials to not react.