Top Federal Reserve official warns of inflation risk in the United States after Donald Trump takes office

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A senior Federal Reserve official warned of the threat of a resurgence of inflation in the United States after Donald Trump takes office, even as he forecasts solid growth for the entire largest economy in the world.

Richmond Fed President Tom Barkin said Americans were still spending freely, job losses remained low and U.S. consumers were starting to resist rising prices.

But while that combination could bring more upside than downside in terms of growth in 2025, Barkin said he also expects more risk on the inflation side.

Wages and product costs could come under pressure, he said in a speech Friday. If they do, given recent experience with inflation, price-setters may have more courage to pass on costs.

Barkins' comments come just weeks before Trump returns to the US presidency with a promise to raise tariffs and cut taxes and regulations. He also pledged to crack down on immigration and carry out mass deportations.

Some economists have warned that the policy agenda could trigger a new surge in U.S. inflation.

Some Fed officials have begun to factor Trump's return into their projections, U.S. central bank Chairman Jay Powell said last month, by including very conditional estimates of the policies' economic effects in their forecasts.

Barkin pointed out that uncertainty over what Trump would actually do was clouding the outlook, but he speculated that there could be a prolonged period of back-and-forth while final plans were made.

If economic growth falters unexpectedly, he said, the damage could be mitigated by the possibility of rolling back some of those policies.

Speaking later Friday, Fed Governor Adriana Kugler highlighted the wide range of views within the central bank on Trump's policies, particularly the impact of his tariffs, on the whether other countries would retaliate and how consumers would react.

We are policymakers and we are forward-looking, so we are considering a wide range of possible scenarios, she said in an interview with CNBC.

Kugler argued that the Fed gradually lower interest rates in 2025, given recent data showing slower progress in reducing inflation.

We want to make sure that this is indeed just a shock and not something more permanent, she said, echoing Barkin in describing the economy as being in a good place.

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The Fed last month lowered interest rates to between 4.25 and 4.5 percent, while officials significantly lowered their estimates for rate cuts in 2025 and 2026 and sharply raised their forecasts. 'inflation.

Most officials now expect cuts of just half a point this year, down from the percentage point they predicted in September.

Barkin said Friday that the Fed is well positioned regardless of how the economy fares.

If employment weakens or inflation returns, we have the tools to respond, he said.

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