Fed Governor Christopher Waller called the launch of new tariffs the biggest shock to the US economy in decades.
He predicted that it could push inflation to nearly 5%, slowing economic growth and making it difficult for the Fed to set its next monetary policy.
During his speech in St. Louis, Waller acknowledged the high uncertainty about the future path of trade policy and the economic consequences.
Several Fed officials also struggled to agree as a variety of different possibilities emerged.
However, he provided one of the most detailed projections yet from a Federal Reserve (Fed) official about the short-term economic impact of the new tariffs if they remain high.
In addition to driving up inflation, high tariffs could also push the unemployment rate to nearly 5% and slow economic growth.
He added that if the inflationary uptick proves to be temporary, the risk of a recession may become a greater priority for the Fed and it may be more inclined to support an earlier FOMC rate cut on a larger scale than previously expected.
However, the tariff setting may change and give rise to a short-term negotiating stance.
That scenario could involve more positive rate cuts, which are not due to an economic slowdown but rather a result of abating inflation.
