Federal Reserve official sees signs of slowing economy but not ready to
cut rates
[May 10, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — A top Federal Reserve official said Friday that
massive uncertainty created by President Donald Trump's tariffs has
caused some businesses to cut back on hiring and spending, threatening
to slow the economy, but he added that it’s not yet clear whether the
central bank should cut its key interest rate.
Tom Barkin, president of the Federal Reserve's Richmond branch, said
businesses have turned cautious, though are not yet engaging in steep
job cuts or other behavior typical of a recession.
“The way I've been describing it is, it’s really hard to drive when it’s
foggy,” Barkin said in remarks to the Loudoun County, Virginia Chamber
of Commerce. “That’s what I’m seeing on the business side. Hiring
freezes, discretionary spending being cut back, but not major layoffs."
Barkin and other Fed speakers Friday underscored the difficult challenge
the central bank faces right now. If the tariffs push up inflation, the
Fed would keep rates elevated — or raise them further. But if the duties
worsen the economy, the Fed would typically cut rates.
On Wednesday, Chair Jerome Powell said the risks of higher inflation and
higher unemployment are rising and that the Fed would wait for greater
clarity about where the economy is headed before making its next move.
Powell spoke after the Fed kept its key rate unchanged for the third
straight meeting.
Trump, however, has continued to assail Powell for not cutting rates,
which over time could lower borrowing costs for consumers and
businesses.
Trump is pushing for rate cuts because he argues that the economy no
longer suffers from the high inflation that spurred the Fed to sharply
raise borrowing costs in 2022 and 2023.
But the most likely reason for the Fed to reduce its key rate in the
coming months, economists say, would be to offset a sharp slowdown in
the economy stemming from the tariffs. As companies see their costs rise
because of higher duties — about half of imports are parts used by
American companies — they could institute widespread layoffs, pushing up
unemployment and risking recession.
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 Gregory Daco, chief economist at EY,
a consulting firm, said he thinks the Fed should cut rates soon
because "the economy is slowing and will continue to slow and flirt
with the recession.”
A key challenge for the Fed right now, however, is determining which
risk is bigger for the economy, inflation or unemployment.
Barkin said it was too early to say that lower borrowing costs are
needed to boost growth.
“We have risks on the inflation side, and if you see as I see that
we have risks on the unemployment side, then declaring that one risk
is more significant than the other right now feels almost like
guessing,” Barkin said.
Barkin is one of the 19 officials who participate in the Fed's eight
yearly meetings to decide on interest-rate policy. Only 12 of those
members vote on the decision. Barkin is not one of the voters this
year.
Other Fed officials Friday echoed Barkin's cautious message.
Michael Barr, a member of the Fed's Washington-based board of
governors, said the tariffs could push up inflation for an extended
period, likely leaving the Fed on hold. That is in contrast to some
economists, who think the duties will only push up prices
temporarily.
"Higher tariffs could lead to disruption to global supply chains and
create persistent upward pressure on inflation,” Barr said in
written remarks delivered earlier Friday at a conference in
Reykjavik, Iceland.
Barkin, however, appeared to take a different view on inflation in
his remarks. He suggested that cash-strapped consumers may be
reluctant to pay higher prices for long, which could force
manufacturers and retailers to eat the additional costs from
tariffs.
“That means that it’s nice to say you’re going to pass it on, but
it’s not as easy to pass it on as you might think,” Barkin said.
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