Trump’s Tariffs Could Hit the Economy More This Time, Fed’s Barkin Says

Richmond Fed President Tom Barkin is seeing some evidence that the Trump administration’s tariffs could have a bigger impact on the economy than the levies imposed during the president’s first term.

He told the Council on Foreign Relations in New York on Tuesday that the murky economic outlook makes determining the path of interest rates going forward more challenging.

Yet Barkin said he remains cautious about formulating economic outlooks until the tariff policies are fully fleshed out. But there are indications that the latest trade policy decisions could affect the economy more this time around.

“I don’t think this is going to be 2018 or 2019 by the way. Just the tariffs announced so far, if you include Mexico, and Canada, are four times the increase you saw in 2018,” Barkin said.

President Donald Trump is expected to announce a series of tariff increases on Wednesday that could include a broad range of products, sectors, and countries. This follows 25% tariffs on imported vehicles and parts that Trump introduced last week, and last month’s levies against China, as well as some against Canada and Mexico.

During Trump’s previous term, he imposed tariffs after 10 years of no or low inflation, Barkin said. Suppliers, at that point, didn’t think they had pricing power and consumers didn’t really know what inflation was, he added. So the result was very modest inflation at most, a little bit of issues in terms of investor sentiment.

“It was not a big issue in the context of the entire economy,” he said.

But the conditions are notably different this time. Many consumers are already frustrated by high prices, and they have started to take action over the past year to trade down, Barkin said. That could make it more difficult for businesses to simply pass on the higher costs.

The U.S. economy appeared a bit softer at the start of this year than in 2024—with slower consumer spending and higher inflation levels than desired, though unemployment has remained stable. But the numbers only tell part of the story, Barkin said, noting that “uncertainty” is the main theme.

While research around the implications of the 2018-2019 tariff hikes can help estimate how the current and upcoming levies could play out, Barkin says it’s important to wait to see where trade policy ends up.

“You don’t know where policy is going to land. You don’t know what the implications of that are going to be,” Barkin said. “It’s very hard to make investment decisions, hiring decisions, spending decisions with that amount of uncertainty.”

This all makes it challenging for Fed officials and their forecasting capabilities. Moreover, Barkin said investors and Fed watchers can be overzealous in trying to gauge exactly how policymakers will react.

“There’s an unhealthy amount of focus on the Fed in the financial press and the financial markets,” Barkin said while acknowledging wryly that he does speak from time to time and adds to that conversation. But he contended the public needs to take that communication “in the spirit that it’s intended, which is to try to be transparent and try to help people understand our reaction functions.”

Barkin added that it drives him “a little crazy” when people a median forecast for the benchmark federal funds rate in the central bank’s latest Summary of Economic Projections as a Fed promise to cut rates or whatnot. The SEP gathers economic forecasts, including for interest rates, from members of the Federal Open Market Committee four times a year.

“People don’t make promises or commitments. The world changes, and you’ve got to change,” Barkin said, adding he would love to never get another question on how many cuts he’s penciling in. “There’s an assumption about where the economy might go. There’s a reaction function, given that assumption, and that reaction function leads to a prediction of rate cuts. But who knows whether the economy is going to go that way.”

Source: Barrons