Trade War May Bring Inflation, Fed’s Williams Warns

Expanded tariffs by both Washington and Beijing will affect ‘prices paid in stores,’ he says.

The US-China trade conflict will surely expand inflation, said John Williams, president of the New York Federal Reserve Bank.

“If there were a further escalation in terms of tariffs those effects would get even larger,” he said in a Bloomberg TV interview Tuesday, where he didn’t provide any hard numbers. “This starts to affect consumer prices as these tariffs are applied more broadly. The consumer sees it in prices paid in stores. That’s a significant effect.”

Williams, as New York Fed chief, occupies one of the most influential posts at the central bank. Previously the head of the San Francisco Fed, he has been associated with the dovish camp advocating lower rates. But in the recent past, he has seemed to be more hawkish.

With President Donald Trump’s decision to boost tariffs on $200 billion in Chinese merchandise to 25% from 10%, and Beijing’s retaliation in kind on $60 billion in American goods, the odds are that US prices will escalate. Just how much remains an open question.

This is a significant issue for the Fed, which has put its rate hikes on hold while it awaits more economic developments. Trump on Tuesday renewed his urging for the Fed to lower rates, as a tactic to ease any burdens on Americans.

Overall, Williams did not sound overly alarmed. Central banks must get ready for an era of slow growth and subdued interest rates, he told a panel at a conference in Zurich Tuesday.

“Central banks should revisit and reassess their policy frameworks, strategies, and toolkits, to maximize efficacy,” he said, given a global environment where high savings rates and relatively low investment keep down interest rates.

Right now, inflation is a tame 2% annually as of April. And unemployment last month was at a 49-year low, 3.6%.

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