Fed Governor Barr Warns: Rate Cuts Must Be Approached Cautiously Amid Tariff Pressures

Federal Reserve Governor Michael Barr has warned against rushing into further interest rate cuts, urging maximum caution as the effects of new tariffs could heighten inflationary risks.

Barr: Time to Slow Down Policy Changes In his Thursday speech at the Economic Club of Minnesota, Barr emphasized that “common sense calls for caution” as economic uncertainty continues to grow.

He said the Fed must gather more data, reassess its forecasts, and carefully evaluate risks before making any additional moves on interest rates. His remarks come just a month after the U.S. central bank implemented its first rate cut of the year — a 0.25% reduction in its key policy rate.

Tariffs Could Bring More Persistent Price Pressures Barr noted that although the effects of Donald Trump’s tariff policy on inflation have so far been less dramatic than expected, there is still a risk that prices could begin to rise as companies run down inventories and strive to protect profit margins. “This increase in tariffs was not a one-time, easily absorbed event,” Barr said.

“If businesses and consumers start acting as if inflation will continue rising, it could create a cycle of ongoing increases in prices and wages.” He warned that the new tariffs may lead to more persistent inflation expectations than previously anticipated.

Labor Market Remains Fragile Regarding the labor market, Barr said it is still difficult to determine how much of the recent slowdown in job creation stems from weaker demand.

While the ratio of job openings to unemployed workers remains relatively balanced, he cautioned that this equilibrium is driven by declines in both labor supply and new hiring. This suggests that the job market may be vulnerable to external shocks, and any renewed inflationary surge could upset the delicate balance.

Fed Faces a Tough Decision The next Federal Reserve meeting is scheduled for October 28–29, where policymakers will decide whether to cut rates again. Barr indicated that the Fed must weigh whether such a move would help employment or instead ignite another wave of inflation. “Deciding on rates is never easy — especially in an environment where the labor market and prices are moving in opposite directions,” Barr emphasized.

Lindsey Withdraws from Chairmanship Consideration Meanwhile, former Fed Governor Larry Lindsey announced he is withdrawing his name from consideration for the position of Federal Reserve Chair. He said he wants to focus on his personal life and avoid returning to the challenges of public service.

Barr’s remarks make it clear that the Fed will take a highly cautious approach to future rate decisions — particularly as Trump’s tariffs begin to ripple through the economy and threaten to reignite inflationary pressures.

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