NEW ORLEANS (Reuters) - The U.S. economy is near the point where inflation moves higher and a scheduled tariff increase for Chinese imports could also fuel price increases, Atlanta Federal Reserve President Raphael Bostic said on Thursday.
Bostic told a banking event that business leaders were telling him that much of the tariff increases will be passed on to consumers in the form of higher prices.
“Then we’ll have to see how the economy performs,” he said.
The Trump administration plans on Friday to raise tariffs to 25 percent from 10 percent on roughly $200 billion in Chinese imports, escalating a trade war over Washington’s desire to overhaul its economic relationship with China.
Companies had been willing to absorb much of the cost of 10 percent by reducing their profit margins, Bostic said. “Twenty-five percent is a whole other game.”
Chinese officials were in Washington on Thursday for talks aimed at reaching a deal to end the trade war.
Bostic said the talks come at a time when the U.S. economy is nearing the point where inflationary pressures shift into a higher gear. “I actually think we’re almost to the cusp where we’re going to see prices move,” he said.
In an apparent reference to a Labor Department report that showed a rise in prices paid by producers in April, Bostic said: “Some data that came out today suggested price pressures are a little hotter.”
He did not comment on the outlook for interest rates, which the Fed has held steady since a December rate increase.
The pause, which followed several years of hikes, has partly owed to concerns over inflation being persistently beneath the Fed’s 2 percent target.
Bostic said the Fed will keep a close eye on the trade war as one factor that could affect the inflation outlook.
“There are many, many factors,” Bostic said. “We’re just trying to stay on top of all of them to see if the economy starts to move definitively in one direction or another.”
Reporting by Jason Lange; Editing by Chizu Nomiyama