According to the Zhitong Finance APP, Chicago Federal Reserve President Austan Goolsbee stated that business leaders are very concerned that tariffs could trigger widespread supply disruptions and reignite inflationary pressures. Goolsbee said in an interview on Monday, &#34;What is concerning is that if these tariffs are as high as threatened by the U.S., and if there are large-scale retaliatory tariffs, followed by further retaliation, this could bring us back to the situation of uncontrolled inflation we saw in 2021 and 2022.&#34; The U.S. inflation rate soared to a 40-year high in 2022, forcing the Federal Reserve to significantly raise borrowing costs to address price pressures.
The Federal Reserve cut interest rates by 100 basis points in 2024 and has kept rates unchanged so far this year. Most policymakers indicated that rates are at a favorable position, allowing them to observe the impact of tariffs and other government policies on the economy.
Goolsbee noted that hard data looks &#34;pretty good,&#34; but tariffs make it more challenging to determine the short-term direction of the economy. This statement echoed remarks made by Federal Reserve Chairman Jerome Powell last week. Powell stated last week that potential tariffs could have a lasting impact on inflation, and the Federal Reserve is prepared to wait and consider adjustments to monetary policy, ensuring that price increases do not lead to sustained inflation. Powell believes that the impact of tariffs on the economy could be greater than expected, potentially raising inflation in the coming quarters, with lasting effects also possible. Powell stated that the Federal Reserve has an obligation to keep inflation expectations stable, and the process of achieving the 2% inflation target has slowed. The Federal Reserve is conditionally waiting before considering any policy adjustments.
Powell also mentioned that weak economic growth and rising inflation are offsetting each other, which will lead the Federal Reserve to maintain expectations for two rate cuts in 2025; &#34;hard data&#34; points to a slowing but still solid growth outlook, with the labor market generally balanced. Despite high uncertainty, the U.S. economy remains in good shape.
Rising Expectations for Rate Cuts
As the U.S. government's imposition of tariffs raises concerns about a global economic recession, the market is rapidly adjusting interest rate expectations. The overnight interest rate swap market shows that investors are betting on a 125 basis point rate cut by the end of the year, equivalent to five standard operations of 25 basis points each. Just last week, the market had only fully digested expectations for three rate cuts. Additionally, the swap market indicates that there is about a 40% probability that the Federal Reserve will lower the benchmark rate by 25 basis points (i.e., an emergency cut) next week.
This drastic adjustment reflects that panic is spreading in global markets. Trump showed no signs of backing down from the tough tariff policies announced last week, stating to reporters on Sunday night, &#34;Forget about the market for now.&#34;
Federal Reserve in a Dilemma
The impact of tariffs has intensified the Federal Reserve's dilemma, as it needs to curb price pressures while also guarding against the risk of a deteriorating labor market.
The initial impact of tariffs is expected to be reflected in prices, as producers and importers will pass at least part of the costs onto consumers. Economists believe that this year's price increases could lead to an overall inflation rate that is one percentage point or more higher than normal, which is far from the Federal Reserve's 2% target
As households and businesses adapt to higher prices, demand is expected to slow down—this somewhat hints at stagflation.
This week, the U.S. March CPI data will be released. According to economists' forecasts, the U.S. March CPI is expected to rise 0.1% month-on-month, the smallest increase since July of last year. Meanwhile, the core CPI, excluding volatile food and energy costs, is expected to rise 0.3% month-on-month and 3% year-on-year. In the first two months of this year, the U.S. core CPI has shown signs that the long-term downward trend in inflation is stagnating. Industry insiders believe that the new round of tariff measures by Trump will pose an upside risk to inflation, so the slowdown in inflation data may only be temporary.
At the same time, an increasing number of market participants believe that Trump's tariffs, even if they do not directly trigger a recession in the U.S. economy, will hinder economic growth. S&amp;P Global has raised the probability of a U.S. recession from 25% in March to the current 30% to 35%. HSBC has also increased the probability of a recession in the U.S. stock market to 40%.
JP Morgan joined the ranks of those predicting a U.S. recession last Friday, with its economists forecasting that the U.S. real GDP will decline by 0.3% for the year, down from a previous forecast of 1.3% growth, and the unemployment rate will rise from the current 4.2% to 5.3%. After the implementation of these tariffs, JP Morgan also raised the likelihood of a recession in the U.S. and globally to 60%, an increase of 20 percentage points from before.
On April 6, Goldman Sachs' research team significantly raised the probability of a U.S. recession over the next 12 months to 45%, a sharp increase of 10 percentage points from previous forecasts. This report also lowered the GDP growth expectation for the fourth quarter of 2025 to 0.5%, halving the original forecast. Just last Monday, Goldman Sachs had raised the probability of a U.S. recession over the next 12 months from 20% to 35%.
Wall Street analysts expect that the impact of tariffs will prompt the Federal Reserve to further cut interest rates to boost the economy. Goldman Sachs expects the Federal Reserve to cut rates three times this year, a prediction echoed by the Royal Bank of Canada. UBS expects the Federal Reserve to cut rates by 75 to 100 basis points for the remainder of the year, Citigroup reaffirmed its expectation of a 125 basis point cut starting in May, and JP Morgan estimates two cuts of 25 basis points each this year.
Former Federal Reserve Vice Chairman and Princeton University economics professor Alan Blinder stated that Powell's &#34;top priority is to eliminate the perception that the Federal Reserve is about to hastily cut rates significantly.&#34; Alan Blinder added, &#34;This does not mean that the Federal Reserve will never cut rates to respond to this situation. If it develops into a recession, the Federal Reserve may cut rates.&#34;

Chicago Federal Reserve President Goolsbee stated that business leaders are concerned that tariffs may trigger supply disruptions and inflationary pressures. He pointed out that if tariffs are as high as threatened, it could lead to uncontrollable inflation, reminiscent of the situations in 2021 and 2022. Federal Reserve Chairman Powell also mentioned that tariffs could have a lasting impact on inflation, necessitating cautious adjustments to monetary policy. Despite good economic data, tariffs have increased uncertainty regarding the short-term economic outlook. The market expects a 125 basis point rate cut by the end of the year

Zhitong

Citigroup

Federal Reserve's Goolsbee: Companies worry that tariffs will reignite soaring inflation