WASHINGTON (Reuters) -Federal Reserve officials on Wednesday pointed to the large policy uncertainty around tariffs and other issues arising from the early days of President Donald Trump's administration as among the top challenges in figuring out where to take U.S. monetary policy in the months ahead.

Chicago Fed President Austan Goolsbee warned that ignoring the potential inflationary impact of tariffs would be a mistake, whereas Richmond Fed President Thomas Barkin said it remains impossible at this early stage to know where cost increases from any tariffs might be absorbed or passed along to consumers.

The views of the two U.S. central bankers were emblematic of the cautious approach Fed officials are angling to take in deciding whether to resume interest rate cuts later this year or continue to keep them on hold. The Fed left its benchmark interest rate unchanged last week in the 4.25%-4.50% range after cutting it at three straight meetings to close out 2024.

The U.S. economy is strong, the labor market is "plausibly" at full employment, and inflation has come down and is approaching the Fed's 2% goal, Goolsbee said in remarks prepared for delivery to the Chicago Fed's annual auto symposium in Detroit.

"Yet we now face a series of new challenges to the supply chain - natural and man-made disasters from fires and hurricanes to collisions with bridges that take out major ports, canal cloggings and threats of dockworker walkouts; geopolitical disruptions; immigration; and, of course, the threat of large tariffs and the potential for an escalating trade war," Goolsbee said. 

"If we see inflation rising or progress stalling in 2025, the Fed will be in the difficult position of trying to figure out if the inflation is coming from overheating or if it's coming from tariffs," Goolsbee said. "That distinction will be critical for deciding when or even if the Fed should act."

The Trump administration announced last weekend that 25% tariffs on imports from Mexico and Canada would start on Feb. 4, but it delayed them until March 1 after the leaders of the two major U.S. trade partners agreed to crack down on drug smuggling and help stem the flow of undocumented migrants into the U.S. 

An additional 10% tariff on imports from China went into effect on Tuesday.

LAYERS OF COMPLEXITY

Barkin, speaking to reporters after a Conference Board event in New York, said the "lean" in the latest set of policymaker projections is still toward further rate cuts this year, although uncertainty about the impact of tariffs, immigration and regulations will need to be better understood.

On tariffs specifically, Barkin said he sees three layers of complexity in arriving at their ultimate impact on inflation and demand.

First is the uncertainty around the level of duties and exactly who they are levied upon, Barkin said. The next unknown is whether other countries retaliate with tariffs of their own and to what degree companies absorb or pass on the higher import costs. Lastly, he said, is seeing "how this will all land on consumers."     

Economists generally view tariffs as a one-time lift to prices that should not feed into inflation in any persistent way or suggest the economy is overheating, which means a response from the central bank is not required.

Goolsbee, however, said this time "tariffs may apply to more countries or more goods or at higher rates, in which case the impact could turn out to be larger and longer lasting," compared to 2018 when Trump put import duties in place during his first administration. 

"If in 2018 companies shifted all the easiest things out of China, then what's left might be the least substitutable goods," he said. "In that case, the impact on inflation might be much larger this time."

Goolsbee noted that in the auto industry, where parts used in the final assembly of a truck or car could cross borders multiple times as part of complex supply chains, tariffs could get stacked on top of tariffs. 

And even if those tariffs don't get passed directly along to car buyers, they can impact inflation in other ways, he suggested. 

Suppliers say they believe manufacturers will balk at paying more for parts, so suppliers will end up eating the cost, and with margins tight already, they fear a wave of supplier bankruptcies, he said.

Goolsbee has until now been one of the Fed's most vocal supporters of lowering interest rates to better align them with falling inflation.