Austan Goolsbee, President of the Chicago Federal Reserve, says that recent tariff threats from President Donald Trump have complicated the Federal Reserve’s policy, potentially delaying changes to interest rates.

What Happened: In an interview with CNBC on Friday, Goolsbee indicated that while he anticipates a downward trend in rates, the Federal Reserve will likely hold off on changes as it assesses the impact of fluctuating trade policy on inflation and employment.

Goolsbee’s comments come in the wake of Trump’s call for a 50% tariff on products from the European Union starting June 1, and a 25% tariff on iPhones not manufactured in the U.S. These tariffs have the potential to impact inflation and employment, two key factors in the Federal Reserve’s decision-making process.

Goolsbee said that while all options are always considered, the bar for action is higher in the current climate of uncertainty. He expressed concern about the potential stagflationary impact of the tariffs, describing it as the “central bank’s worst situation,” CNBC reports.

Why It Matters: The Federal Reserve’s decisions on interest rates have wide-reaching effects on the economy, influencing everything from consumer spending to business investment. Any delay or uncertainty in these decisions can have significant implications for economic growth and stability.

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Goolsbee, who is a voting member on the rate-setting Federal Open Market Committee, remains optimistic about solid economic growth in the long run, despite the recent market turbulence caused by Trump’s tariff announcement. He avoided committing to a specific course of action amid the current uncertainty, emphasizing the need for flexibility and adaptability in the face of changing economic conditions.

This perspective aligns with Goolsbee’s comments in April, when he agreed with Treasury Secretary Scott Bessent on the importance of preserving the Federal Reserve’s independence and waiting for further policy action on tariffs before making any decisions.

Goolsbee’s cautious approach to interest rate changes in the face of trade policy uncertainty underscores the complex interplay between fiscal policy, trade policy, and monetary policy, and the challenges that central bankers face in navigating these interconnected areas.

The Federal Open Market Committee, which includes Goolsbee, will meet next on June 17-18, providing an opportunity for officials to update their economic and interest rate projections. The last update in March indicated two potential rate cuts this year.

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