By Christopher Lugerber
WASHINGTON (AP) – A senior Federal Reserve official said Friday that the massive uncertainty created by President Donald Trump’s tariffs led some businesses to cut jobs and spending and slow the economy, but added that it is not yet clear whether central banks should cut key interest rates.
Tom Birkin, president of the Federal Reserve Richmond chapter, said that businesses are still not engaged in sharp work cuts or other actions typical of recessions, but are being cautious.
“The way I’ve explained it is really difficult to drive when it’s foggy,” Birkin said in a statement to the Virginia Chamber of Commerce to Loudoun County. “That’s what I see from a business perspective. It cuts employment freezes, discretionary spending, but there’s no major layoffs.”
Birkin and other Fed speakers on Friday highlight the difficult challenges central banks are currently facing. If tariffs push inflation up, the Fed will raise interest rates or raise them further. But when jobs worsen the economy, the Fed cuts regular fees.
On Wednesday, Chairman Jerome Powell said the risk of high inflation and high unemployment is rising, and the Fed will be more clear about where the economy is heading before making the next move. Powell spoke after the Fed did not change the key rate for the third straight meeting.
But Trump continues to attack Powell by not cutting it, potentially reducing borrowing costs for consumers and businesses over time.
Trump is pushing for interest rate cuts as he argues that the economy is no longer plagued by the high inflation that has spurred the economy to sharply raise borrowing costs in 2022 and 2023.
But the reason the Fed is most likely to cut its key rates in the coming months is to offset the sharp slowdown in the economy due to tariffs. As businesses see that their costs rise due to higher missions, they could establish broad layoffs, boost unemployment and risk the recession.
Gregory Dako, chief economist at consulting firm EY, said he believes the Fed should cut fees immediately as the economy “slows down, the recession keeps slowing down and cheating.”
However, the key challenge for the Fed now is determining whether the risk is greater: the economy, inflation or unemployment.
Birkin said it’s too early to say that borrowing costs are low to drive growth.
“We have risks in the inflation aspect. If we find out there is risks in the unemployment aspect, one risk declares that the other risks now feel like speculation,” Birkin said.
Birkin is one of the 19 officials who attend eight annual meetings of the Fed to determine interest rate policies. Only 12 of these members will vote for the decision. Birkin is not one of the voters this year.
Other Fed officials on Friday reflected Birkin’s careful message.
Michael Barr, a member of the federal government’s Washington-based Governor’s Committee, said tariffs could boost inflation for a long period of time and possibly put the Fed on hold. That contrasts with some economists who believe their duties will only temporarily push prices up.
“The higher the tariffs, the more disrupted the global supply chain and could cause permanent upward pressure on inflation,” Barr said in a written statement at a meeting held in Reykjavik, Iceland on Friday.
However, Birkin appeared to have a different view on inflation in his remarks. He suggested that cash-bound consumers could be reluctant to pay higher prices over the long term.
“I mean you’re happy to say you’re going to tell them, but it’s not as easy to convey that as you might think,” Birkin said.
Original release: May 9, 2025, 3:15pm EDT
