Cleveland Fed President Outlines Economic Scenarios Amid New Tariffs

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At the Atlanta Federal Reserve's Financial Markets Conference on May 20, 2025, Cleveland Federal Reserve President Beth Hammack outlined three potential economic scenarios in response to recent U.S. tariff implementations. She emphasized the Federal Reserve's commitment to monitoring these developments and adjusting monetary policy as necessary to maintain economic stability.

Hammack presented the following scenarios:

  1. One-Time Price Increase with Economic Slowdown Due to Uncertainty: Tariffs lead to a one-time increase in prices, but the resulting policy uncertainty causes a slowdown in economic growth.

  2. Resilient Labor Market with Persistent Inflation from Layered Tariffs: The labor market remains strong as businesses retain employees, but tariffs cause persistent inflation due to their staggered implementation.

  3. Stagflationary Outcome with Economic Slowdown and Rising Inflation: The economy experiences both a slowdown in growth and rising inflation, a scenario Hammack considers most likely.

Hammack emphasized the Federal Reserve's commitment to monitoring these developments and adjusting monetary policy as necessary to maintain economic stability.

The U.S. economy contracted at a 0.3% annualized rate in the last quarter, and the unemployment rate stands at 4.2%. The Federal Reserve has maintained the federal funds rate between 4.25% and 4.5% since December 2024.

Hammack's presentation underscores the complexities introduced by recent U.S. tariff implementations and the Federal Reserve's commitment to data-driven, cautious policy responses. The outlined scenarios provide a framework for understanding potential economic trajectories and the challenges policymakers face in maintaining economic stability.

Tags: #federalreserve, #tariffs, #economy, #inflation

Sources

  1. 🔭 Three scenarios
  2. Beth M. Hammack
  3. Fed's Hammack wants clear data before moving on rates, not much data by June
  4. Fed's Hammack sees steady monetary policy as central bank seeks more data
  5. Exclusive: Cleveland Fed official's three scenarios for tariff-hit economy
  6. Fed officials expect tariffs to boost prices; White House downplays risk

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