NEW YORK, June 3 (Reuters) - Federal Reserve officials on Tuesday argued again for caution on monetary policy as President Donald Trump's trade war continues to inject substantial amounts of uncertainty and the risk of economic weakness into the outlook.
"I continue to believe the best approach for monetary policy is patience," Atlanta Fed President Raphael Bostic said in an essay released by his regional Fed bank. In a "broadly healthy" economy "we have space to wait and see how the heightened uncertainty affects employment and prices ... I am in no hurry to adjust our policy stance," he said.
Speaking separately at an event in New York, Fed Governor Lisa Cook said U.S. monetary policy is in a good place to respond to different economic scenarios.
The U.S. economy is in a "solid position" amid heightened uncertainty, Cook told a gathering at the Council on Foreign Relations.
"There is evidence that changes to trade policy are starting to affect the economy" and "I anticipate a slowdown in the expansion of economic activity from last year's pace," Cook said. She tied trade policy to drops in manufacturing output and some types of orders for big-ticket factory goods, as well as a pullback in investment as firms navigate the uncertainty.
Cook said "the current stance of monetary policy is well positioned to respond to a range of potential developments" in terms of interest rates. She added that all options are on the table for the Fed if needed and that "we have to be open to all possibilities" such as cutting, holding or raising rates.
"We don't know how tariffs are going to play out, so all of those (rate policy) scenarios could be possible," Cook said.
Speaking to reporters in a conference call, Bostic said the one rate cut he penciled in for 2025 as part of the quarterly forecasts released by the Fed in March could happen. "I still think there's space for that, and a lot of it will depend on how the uncertainty resolves itself," he said.
But Bostic also noted inflation is still above the Fed's 2% target and underlying prices are higher than he'd like, adding that even if tariffs weren't roiling the outlook, it would be a "tough call" to say that rate cuts are warranted right now.
PERSISTENT OR PASSED THROUGH?
The Fed is expected to hold its benchmark interest rate steady in the 4.25%-4.50% range at its next policy meeting on June 17-18. Many economists as well as Fed officials believe inflation and unemployment are likely to rise and growth to slow due to Trump's import tax agenda.
The big debate among central bankers is whether tariffs will drive a one-time price increase or create the grounds for something more persistent. Officials like Fed Governor Christopher Waller, who spoke on Sunday, lean toward expecting a one-time hit the U.S. central bank can likely look through, while arguing it remains possible it can be cutting rates before the end of the year.
Other Fed officials, however, are more unsure how it will play out. Cook noted on Tuesday that the high inflation landscape of theCOVID-19 pandemic may embolden some businesses to raise prices now. She, like other Fed policymakers, said it's critical to keep the public from expecting higher inflation over the longer run.
Chicago Fed President Austan Goolsbee, speaking at an event held by the Corridor Business Journal in Cedar Rapids, Iowa, said on Tuesday that with businesses signaling plans to pass along tariff increases to consumers, higher prices could show up in inflation data in a month, or "certainly within a couple of months if it's going to affect prices in a significant way."
Earlier on Tuesday, the U.S. Labor Department released its Job Openings and Labor Turnover Survey, or JOLTS report, which showed a rise in both job openings and layoffs in April. Economists, however, did not signal concern as they await the release on Friday of the monthly U.S. employment report for May.
Carl Weinberg, chief economist at High Frequency Economics, said "we will call this (JOLTS) report another indication of stasis in U.S. companies in the face of tariff uncertainty." He added that "we suspect companies are still hoarding workers until they are very, very sure about an economic downturn."
Reporting by Michael S. Derby and Ann Saphir; Editing by Paul Simao
