Federal Reserve Governor Michael Barr said Thursday that he favors a cautious approach to interest rates given uncertainties about whether tariffs would push inflation higher, breaking with some colleagues who are pushing aggressively for more easing.

He even expressed skepticism about whether the Fed should fully “look through” higher inflation from import tariffs, as some of his fellow policymakers have argued while making their own case for lower rates.

“There has been nothing “one-time” or predictable about these tariff increases, which have ratcheted upward this year on particular countries and particular sectors in a series of steps,” Barr added while delivering a speech in Minnesota.

The remarks from Barr were the latest reminder of how divided the Fed is even as most policymakers agree that rates will eventually fall further.

For example, New York Fed president John Williams told The New York Times in an interview published Thursday that he is more concerned about the job market now and that he supports further interest cuts this year given the slowdown in payroll growth and signs companies are more hesitant to hire.

Williams told the Times he thinks the Fed can focus more on the jobs side of the Fed’s dual mandate because the inflation outlook doesn’t look as dire as earlier in the year and a softening labor market would help to keep a lid on inflation.

“The risks of a further slowdown in the labor market is something I’m very focused on,” Williams told the Times.

There was also some division at the Fed's last meeting about whether to cut interest rates and by how much, though most agreed the central bank could cut rates further in 2025.

“Most judged that it likely would be appropriate to ease policy further over the remainder of this year,” according to the minutes from the Federal Market Open Committee's Sept. 16-17 meeting, which were released Wednesday.

The Fed at that meeting decided to reduce rates by a quarter point, in its first reduction of 2025.

While most officials thought it was wise to cut rates at that meeting on account of higher risks to employment, some still expressed a lot of concern about inflation, reinforcing the division that still exists behind closed doors.

A few even saw “merit” in holding rates unchanged, according to the minutes, given that they felt progress on bringing down inflation had stalled.

These officials expressed concern that longer-term inflation expectations may rise if inflation does not return to the Fed’s 2% target in a timely manner.

Barr is among those still concerned about inflation.

“The FOMC should be cautious about adjusting policy so that we can gather further data, update our forecasts, and better assess the balance of risks,” Barr said in his Thursday speech in Minnesota.

“If we see inflation moving further away from our target, then it may be necessary to keep policy at least modestly restrictive for longer. If we see heightened risks in the labor market, then we may need to move more quickly to ease policy.”

Barr is concerned about the risk inflation from tariffs is more persistent than short lived, saying he looks at tariff collections relative to imports to gain a measure of the real effective tariff rate paid as goods come into the country.

Based on that, he estimates the effect tariff rate was about 11% in August and likely to rise further. Barr noted tariff hikes have boosted core goods inflation, and at the same time progress on core services inflation has stalled. He said he expects inflation excluding volatile food and energy prices will end the year over 3%.

The median forecast at the Fed is for inflation not to return to 2% for more than two years from now, which would mark six and a half years since inflation began rising in 2021.

Barr remarked this would be the longest period of inflation above 2 percent since a seven-year stretch that ended in 1993.

“After the high inflation Americans have endured, two more years would be a long time to wait for a return to our target, and that possibility weighs on my judgment for appropriate monetary policy,” he said. “I am also concerned about further upside risks to inflation and inflation expectations.”

At the same time Barr acknowledged that there has been a sharp drop in job creation since May, which suggests risks to the labor market.

“With the easing in output growth and the likelihood of tariffs and labor supply weighing on the economy in the months ahead, we need to be prepared for the possibility that the softening in the labor market will become something worse, especially if there is a further adverse shock to demand,” said Barr.

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Federal Reserve Governor Michael Barr said Thursday that he favors a cautious approach to interest rates given uncertainties about whether tariffs would push inflation higher, breaking with some colleagues who are pushing aggressively for more easing.

He even expressed skepticism about whether the Fed should fully “look through” higher inflation from import tariffs, as some of his fellow policymakers have argued while making their own case for lower rates.

“There has been nothing “one-time” or predictable about these tariff increases, which have ratcheted upward this year on particular countries and particular sectors in a series of steps,” Barr added while delivering a speech in Minnesota.

The remarks from Barr were the latest reminder of how divided the Fed is even as most policymakers agree that rates will eventually fall further.

For example, New York Fed president John Williams told The New York Times in an interview published Thursday that he is more concerned about the job market now and that he supports further interest cuts this year given the slowdown in payroll growth and signs companies are more hesitant to hire.

Williams told the Times he thinks the Fed can focus more on the jobs side of the Fed’s dual mandate because the inflation outlook doesn’t look as dire as earlier in the year and a softening labor market would help to keep a lid on inflation.

“The risks of a further slowdown in the labor market is something I’m very focused on,” Williams told the Times.

There was also some division at the Fed's last meeting about whether to cut interest rates and by how much, though most agreed the central bank could cut rates further in 2025.

“Most judged that it likely would be appropriate to ease policy further over the remainder of this year,” according to the minutes from the Federal Market Open Committee's Sept. 16-17 meeting, which were released Wednesday.

The Fed at that meeting decided to reduce rates by a quarter point, in its first reduction of 2025.

While most officials thought it was wise to cut rates at that meeting on account of higher risks to employment, some still expressed a lot of concern about inflation, reinforcing the division that still exists behind closed doors.

A few even saw “merit” in holding rates unchanged, according to the minutes, given that they felt progress on bringing down inflation had stalled.

These officials expressed concern that longer-term inflation expectations may rise if inflation does not return to the Fed’s 2% target in a timely manner.

Barr is among those still concerned about inflation.

“The FOMC should be cautious about adjusting policy so that we can gather further data, update our forecasts, and better assess the balance of risks,” Barr said in his Thursday speech in Minnesota.

“If we see inflation moving further away from our target, then it may be necessary to keep policy at least modestly restrictive for longer. If we see heightened risks in the labor market, then we may need to move more quickly to ease policy.”

Barr is concerned about the risk inflation from tariffs is more persistent than short lived, saying he looks at tariff collections relative to imports to gain a measure of the real effective tariff rate paid as goods come into the country.

Based on that, he estimates the effect tariff rate was about 11% in August and likely to rise further. Barr noted tariff hikes have boosted core goods inflation, and at the same time progress on core services inflation has stalled. He said he expects inflation excluding volatile food and energy prices will end the year over 3%.

The median forecast at the Fed is for inflation not to return to 2% for more than two years from now, which would mark six and a half years since inflation began rising in 2021.

Barr remarked this would be the longest period of inflation above 2 percent since a seven-year stretch that ended in 1993.

“After the high inflation Americans have endured, two more years would be a long time to wait for a return to our target, and that possibility weighs on my judgment for appropriate monetary policy,” he said. “I am also concerned about further upside risks to inflation and inflation expectations.”

At the same time Barr acknowledged that there has been a sharp drop in job creation since May, which suggests risks to the labor market.

“With the easing in output growth and the likelihood of tariffs and labor supply weighing on the economy in the months ahead, we need to be prepared for the possibility that the softening in the labor market will become something worse, especially if there is a further adverse shock to demand,” said Barr.

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Read the latest financial and business news from Yahoo Finance

“The FOMC should be cautious about adjusting policy so that we can gather further data, update our forecasts, and better assess the balance of risks,” Barr said in his Thursday speech in Minnesota.

“If we see inflation moving further away from our target, then it may be necessary to keep policy at least modestly restrictive for longer. If we see heightened risks in the labor market, then we may need to move more quickly to ease policy.”

Barr is concerned about the risk inflation from tariffs is more persistent than short lived, saying he looks at tariff collections relative to imports to gain a measure of the real effective tariff rate paid as goods come into the country.

Based on that, he estimates the effect tariff rate was about 11% in August and likely to rise further. Barr noted tariff hikes have boosted core goods inflation, and at the same time progress on core services inflation has stalled. He said he expects inflation excluding volatile food and energy prices will end the year over 3%.

The median forecast at the Fed is for inflation not to return to 2% for more than two years from now, which would mark six and a half years since inflation began rising in 2021.

Barr remarked this would be the longest period of inflation above 2 percent since a seven-year stretch that ended in 1993.

“After the high inflation Americans have endured, two more years would be a long time to wait for a return to our target, and that possibility weighs on my judgment for appropriate monetary policy,” he said. “I am also concerned about further upside risks to inflation and inflation expectations.”

At the same time Barr acknowledged that there has been a sharp drop in job creation since May, which suggests risks to the labor market.

“With the easing in output growth and the likelihood of tariffs and labor supply weighing on the economy in the months ahead, we need to be prepared for the possibility that the softening in the labor market will become something worse, especially if there is a further adverse shock to demand,” said Barr.

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Read the latest financial and business news from Yahoo Finance