WASHINGTON (Reuters) -The U.S. economy is on solid footing with inflation heading to the central bank's 2% target, but trade policies have clouded the outlook, Federal Reserve Governor Michael Barr said on Thursday.

"The economy is on solid footing, with solid growth, low and stable unemployment, and inflation continuing to come down towards our 2% target," Barr said in remarks prepared for delivery to a small business symposium.

But trade policy, including the announcement of massive tariffs that are now paused until the summer, "has led to an increase in uncertainty, contributing to declines in measures of business and consumer sentiment," Barr said.

He did not address his outlook for monetary policy, but noted that the impact of trade disruptions on supply chains could be "particularly acute for small businesses," and translate into a price shock.

"Small businesses play a vital role in production networks, often providing specialized inputs that can't easily be sourced elsewhere," Barr said. "Business failures could further disrupt supply chains. As we saw during the pandemic, such disruptions can have large and lasting effects on prices as well as output."

The Fed is holding interest rates steady as it tries to determine how the Trump administration's trade and other policies will affect inflation and the economy more broadly.