MINNEAPOLIS — Federal Reserve Governor Adriana Kugler warned Tuesday that the central bank should maintain its current interest rate stance in light of sharply higher U.S. import tariffs, which she says pose renewed inflationary risks to the economy.
Speaking at the Heller-Hurwicz Economics Institute at the University of Minnesota, Kugler said that while the U.S. labor market remains solid and economic activity appears stable, the unexpected magnitude of new tariffs—enacted as part of the Trump administration’s broader trade policy—could push prices upward and complicate the Federal Reserve’s efforts to tame inflation.
“With inflation progress having stalled and short-term inflation expectations rising, it is prudent to hold interest rates steady until these risks subside,” Kugler stated. “The economy remains broadly balanced, but the upside threat to inflation from tariffs is real and needs to be carefully monitored.”
Kugler’s comments come just two weeks before the Fed’s next policy meeting. The central bank’s current benchmark rate remains between 4.25% and 4.50%, and recent communications from Fed officials have hinted at a wait-and-see approach amid persistent economic uncertainty.
The Fed Governor also highlighted that some of the first-quarter economic strength may have been artificially boosted by “front-loading” of purchases—as businesses and consumers rushed to buy goods ahead of tariff implementation. This effect, she noted, may mask a deeper underlying slowdown.
Adding to her cautious tone, Kugler cited concerns about financial market volatility, saying that any sustained tightening in financial conditions could further weigh on growth. “If those conditions persist, they may act as a drag on the economy,” she said.
Kugler emphasized that while long-term inflation expectations remain anchored, the recent uptick in short-term expectations and the lack of continued disinflation signal a need for vigilance. She reinforced the Fed’s reliance on real-time data to shape its response in a fast-changing environment, particularly as rate changes can take time to influence actual economic activity.
“I am also closely watching other evolving risks, including employment dynamics, fiscal policy, and regulatory developments,” she added. “We must stay flexible and data-driven as we navigate this complex landscape.”
As the Fed grapples with both persistent inflation and a new wave of trade-related uncertainty, Kugler’s call for caution reflects growing sentiment among policymakers that patience, not haste, may be the best path forward.