The Japan Times - US Fed officials see higher inflation ahead as consumer confidence plunges

The US president imposed sweeping import taxes on dozens of countries, only to abruptly roll many of them back to 10 percent after stock and bond markets reacted sharply, while leaving China with new tariffs totaling 145 percent.

Speaking to Yahoo Finance on Friday, Boston Fed President Susan Collins said she expects higher inflation and slower growth this year thanks to the tariffs, echoing the comments of many of her colleagues on the US central bank's rate-setting committee.

"The higher the tariffs are, the more the potential slowdown in growth as well as elevation and inflation that one would expect," she said, adding she expects inflation to rise "well above" three percent this year, but no "significant" economic downturn.

"At this point, my expectation is that we are likely to have to hold for longer than I had before," she said of the Fed's interest rates.

Shortly after Collins's interview, a widely-referenced consumer confidence survey from the University of Michigan noted a sharp drop in consumer confidence, and flagged a worrying rise in both short-term and longer-term inflation expectations.

"Year-ahead inflation expectations surged from 5.0 percent last month to 6.7 percent this month, the highest reading since 1981," the survey noted.

"Long-run inflation expectations climbed from 4.1 percent in March to 4.4 percent in April, reflecting a particularly large jump among independents," it added.

- 'Near-term risks' -

In a speech in Hot Springs, Arkansas, on Friday, St. Louis Fed President Alberto Musalem said "continued vigilance" and "careful monitoring" of the incoming data was needed, amid the tariff-related turbulence.

"I expect the economic expansion will continue at a more moderate pace, the supply and demand for labor will remain roughly in balance, and inflation will decline to two percent over the medium term," he said, referring to the Fed's long-term inflation target.

"However, I see the near-term risks as skewed toward inflation rising alongside slower economic growth and a further cooling of the labor market," added Musalem, who is a voting member of the Fed's rate-setting committee this year.

"I would be wary of assuming the impact of high tariffs on inflation would be only brief or limited," he said.

New York Fed President John Williams, a colleague of Musalem and Collins on the Fed's rate-setting committee, went further on Friday, putting out estimates of how he expects Trump's immigration and tariff policies -- and the uncertainty around them -- to affect the US economy this year.

"I now expect real GDP growth will slow considerably from last year's pace, likely to somewhat below one percent," he told a conference in Puerto Rico, according to prepared remarks.

"With this downshift in the pace of growth... I expect the unemployment rate to rise from its current level of 4.2 percent to between 4.5 and 5 percent over the next year," he said.

"I expect increased tariffs to boost inflation this year to somewhere between 3.5 and 4 percent," he added.

K.Nakajima--JT