By Ann Saphir

(Reuters) – Federal Reserve officials indicated on Friday that the U.S. job market remains solid, though uncertainty around President Donald Trump’s policies complicates the economic outlook and elevated inflation, leading to a cautious stance on interest rate cuts.

The Labor Department reported a 4% unemployment rate last month, with 143,000 jobs added—signs of a healthy labor market, according to Federal Reserve Governor Adriana Kugler from Miami, Florida. However, Kugler expressed concerns about “considerable uncertainty” regarding the economic effects of proposed policy changes, as inflation remains slow and uneven despite recent improvements.

The Fed’s preferred inflation metric, the personal consumption expenditures price index, increased to 2.6% in December, exceeding their 2% target. Kugler suggested maintaining the federal funds rate is prudent due to these combined factors.

A University of Michigan survey revealed a rise in consumer inflation expectations to 4.3%, the highest since November 2023. Following the morning’s data, stocks declined, and traders predicted the Fed might only cut rates once this year, likely waiting until the latter half.

Fed Chair Jerome Powell emphasized the need for caution regarding rate adjustments, especially following Trump’s recent tariffs on imports from Mexico, Canada, and China. He emphasized waiting for more information regarding new policies before making decisions.

Economists generally believe tariffs raise prices temporarily without altering long-term inflation trends. Still, some Fed officials worry prices might rise significantly this time due to recent experiences with inflation.

Minneapolis Fed President Neel Kashkari noted that policy uncertainty places the Fed in a “wait and see” position. He highlighted the importance of upcoming inflation data in guiding future policy.

Chicago Fed President Austan Goolsbee downplayed concerns about inflation expressed by households, citing stable market expectations. He believes the Fed’s policy rate will be lower in 12-18 months, anticipating a return to 2% inflation and corresponding interest rate cuts.

However, Dallas Fed President Lorie Logan disagreed, advocating for steady rates even if inflation approaches 2%, citing the necessity for a strong labor market.