Federal Reserve Bank of Chicago President Austan Goolsbee discussed the impact of government policies on prices during a TV interview. He stated that any price increases resulting from such policies must be factored in by the Fed.

Goolsbee referenced concerns from auto parts suppliers regarding tariffs and indicated that the Fed requires more clarity before contemplating rate cuts. He added that the administration’s policy framework is yet to be finalised, prompting the Fed to maintain a cautious approach.

Austan’s remarks highlight the uncertainty that comes with policy-driven cost pressures. If tariffs or other trade measures lead to higher prices for materials, those increases do not simply disappear—they are absorbed at some stage within the supply chain. When companies face higher costs, they either take lower margins or pass those expenses on. If the latter happens, it adds to inflation, and that is what the Fed is watching closely.

Rather than commit to any changes too early, policymakers prefer to wait until they have a clearer view. If inflation metrics show that price rises from these policies persist, interest rates are likely to stay elevated for longer than some may expect. The administration’s stance on trade and industry support is still shifting, and until that settles, the Fed sees little reason to make adjustments prematurely.

Meanwhile, Federal Reserve Governor Christopher Waller provided his own assessment. Speaking separately, Christopher suggested that before considering rate cuts, he would need to see multiple months of strong data showing inflation trending towards the Fed’s target. One or two reports moving in the right direction are not enough. The preference, as he put it, is for confirmation rather than assumption.

This aligns with previous messaging from policymakers. While markets may anticipate looser financial conditions sooner rather than later, officials continue to push back. Waiting allows them to be certain they are not acting too quickly. If inflation slows consistently, only then would they have the confidence to move. Until that happens, decisions will be cautious.

Wage growth, in particular, is a key area of concern. If wages continue rising faster than productivity, businesses could lift prices further, reinforcing inflation pressures. Signs of cooling in the labour market would offer reassurance, but the Fed does not rely on forecasts alone—it relies on realised data.

One risk in delaying too long is that rates could remain high even if inflation is already contained. But from the Fed’s perspective, the costs of cutting too soon, only to reverse course later, are far greater than the risks of holding steady for longer.