Tariffs put Fed in tough spot, caught between growth and inflation fears

An aggressive suite of tariffs announced on April 2 by US President Donald Trump will significantly complicate the Federal Reserve's job as it struggles to quash inflation and avoid an economic downturn, likely keeping officials in a wait-and-see mode.

- 

NEW YORK -

"They're basically our worst-case scenario," said Ms Diane Swonk, chief economist at KPMG, who added that the tariffs raised the likelihood of an economic slowdown in the US.

But Ms Swonk and other economists said Fed officials will likely hold off on lowering rates to cushion the economy while they assess the potential impact of the tariffs on inflation.

The levies, which are harsher than many analysts were anticipating, are expected to raise prices on trillions of dollars in goods imported each year if left in place. A full-blown trade war, with escalating retaliatory tariffs between the US and other countries, could disrupt supply chains, reignite inflation and worsen a souring economic outlook.

Mr Trump said on April 2 the US would apply a minimum 10 per cent levy on all imports to the US, but tariffs on many countries will far exceed that. China's cumulative effective rate is estimated to exceed 50 per cent. The European Union will have a 20 per cent levy and Vietnam is seeing a 46 per cent tariff.