Minneapolis Fed’s Kashkari says focus should be on keeping inflation down as tariffs unfold

As tariffs on U.S. trading partners pile on, the Federal Reserve needs to focus on keeping inflation in check, Minneapolis Fed President Neel Kashkari said Wednesday.

Kashkari zeroed in on the prices side of the Fed’s “dual mandate” — price stability and low unemployment — in an essay laying out how the central bank might react to the escalating trade war.

His comments came hours after President Donald Trump imposed a new round of tariffs, raising import taxes on Chinese goods to 104% and drawing return fire from Beijing. Trump hit a 90-day pause on his reciprocal tariffs midday Wednesday but doubled down on China, announcing 125% taxes on its exports.

“Given the high inflation we’ve experienced in recent years and the risk of unanchoring long-run inflation expectations, I believe our first priority must be keeping long-run inflation expectations anchored,” Kashkari wrote. “Anchored long-run inflation expectations have been foundational to the economic growth and competitiveness the U.S. has enjoyed in recent decades.”

The Fed raised interest rates starting in 2022 to bring inflation down from a 40-year high and started making cuts last year as its 2% goal came into view.

The personal consumption expenditures price index, the central bank’s preferred inflation gauge, rose 2.5% year-over-year in February, according to U.S. Bureau of Economic Analysis data.

The escalating trade war threatens to undo the Fed’s work.

Kashkari echoed that. As the federal government collects revenue from the new import taxes, he wrote, the prices businesses and consumers pay will increase, pushing inflation up and purchasing power down.

Unemployment also could rise as businesses grapple with lower revenue. The tariff announcements Wednesday morning hit Wall Street when it was already down, pushing the benchmark S&P 500 toward bear market territory. The benchmark index rebounded after Trump’s reversal later in the day.

Even before the trade policy whipsaw this week, members of the Federal Open Market Committee were raising concerns about the potential economic hit, the minutes from the committee’s March meeting show.

“Various participants commented that high uncertainty had the potential to damp consumer spending as well as business hiring and investment activities or that inflation was likely to be boosted by increased tariffs,” read the minutes, released Wednesday. “As a result, participants generally saw increased downside risks to employment and economic growth and upside risks to inflation while indicating that high uncertainty surrounded their economic outlooks.”

Tariffs have raised the bar for the Fed to raise or lower interest rates, Kashkari wrote, “even in the face of a weakening economy and potentially increased unemployment.”