Tariffs to weigh on economy despite recent reprieve: Fed official

PARIS

Washington and Beijing's agreement to temporarily reduce tit-for-tat tariffs marks an improvement for trade, but levels remain high and are likely to weigh on economic growth, said a senior Federal Reserve official.

The comments by Fed governor Adriana Kugler, at a symposium in Ireland, came shortly after the United States and China said they would sharply lower tariffs on each other's goods for 90 days while negotiations continued.

"Obviously that's an improvement as far as trade between the two countries" is concerned, Kugler said.

But she added that levels remain "pretty high," noting that the world's biggest economy imports many items from China.

"I still expect an increase in prices and a slowdown in the economy," Kugler warned, although she anticipates this will not happen to the same extent as before.

All eyes are on whether the 90-day pause will be sustained, she said, adding that things are moving in the right direction for now.

She also said that "trade policies are evolving and are likely to continue shifting.”

"Still, they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels," she added.

And the uncertainty associated with these tariffs has already generated effects on the economy, bogging down sentiment and causing companies to ramp up imports as they try and get ahead of fresh levies.

Since returning to the presidency in January, Donald Trump has unleashed tariffs on allies and adversaries alike, including a sweeping 10 percent tariff on most US trading partners and steep rates on goods from China.

The U.S. and China announced on May 12 an agreement to drastically reduce tit-for-tat tariffs for 90 days, an outcome Trump dubbed a "total reset" as he said talks with counterpart Xi Jinping could soon follow.

With the latest agreement, the U.S. is set to lower its tariffs on Chinese goods from 145 percent to 30 percent, while China will reduce its retaliation from 125 percent to 10 percent.

"Yesterday we achieved a total reset with China after productive talks in Geneva," Trump said. "I'll speak to President Xi, maybe at the end of the week."

U.S. Treasury Secretary Scott Bessent described weekend discussions with Chinese Vice Premier He Lifeng and international trade representative Li Chenggang as "productive" and "robust" with both sides anticipated to meet again soon.