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A top Federal Reserve official has warned of the threat of a resurgence of US inflation after Donald Trump takes office, even as he forecasts 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 U.S. consumers are starting to push back against higher prices.
But the combination could provide “more upside than downside” in 2025, Barkin said, adding that he expected “more risk on the inflationary side”.
“Wages and commodity costs could see pressure,” he said in a speech on Friday. “If they do, based on recent experience with inflation, price setters may be more emboldened to pass on costs.”
Barkin’s comments came weeks before Trump returned to the US presidency with a promise to raise tariffs and cut taxes and regulations. He also vowed to crack down immigration and begin mass deportations.
Some economists warned That policy agenda could trigger a new wave of inflation in the US.
Other Fed officials also began accounting for Trump’s return in their estimates, including “highly conditional estimates of the economic impact of policy in their forecasts,” US central bank Chair Jay Powell said last month.
Barkin emphasized that uncertainty about what Trump will actually do is clouding the outlook, but assumed there could be “an extended period of back and forth” as final plans are drawn up.
If economic growth unexpectedly stalls, he said, “the damage could be mitigated by the possibility of some of these policies being rolled back”.
D Fed Last month lowered interest rates to 4.25-4.5 percent, while officials significantly scaled back their projections for rate cuts in 2025 and 2026 and sharply raised their projections for inflation.
Most officials now expect only a half-point rate cut this year, down from the full percentage point they penciled in in September.
Barkin said on Friday that the Fed was “well positioned no matter how the economy develops”.
“If employment declines or inflation re-emerges, we have the tools to respond,” he said.
