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.
With the latest agreement, the United States 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.
"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.
In a prepared speech, she also said Monday that "trade policies are evolving and are likely to continue shifting, even as recently as this morning."
"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.
Where things stand in the US-China trade war
Beijing (AFP) May 12, 2025 -
The United States and China have agreed to slash tariffs on each other's goods, easing a trade war that has upended global markets and supply chains worth hundreds of billions.
AFP looks at the current state of play between the world's two economic superpowers:
- What has been announced? -
Washington and Beijing announced on Monday they will cut import tariffs on each other's goods by 115 percentage points for 90 days.
From Wednesday, the United States will reduce duties on products from China to 30 percent, and China will lower its levy on US imports to 10 percent.
US President Donald Trump had previously slapped 145 percent tariffs on most Chinese goods, with cumulative tolls on some products reaching a staggering 245 percent.
Beijing had hit back with duties of 125 percent on US goods.
The United States and China will also set up a mechanism for regular trade talks alternately in each country, or in an agreed third country, the joint statement said.
- How did the talks go? -
US Treasury Secretary Scott Bessent said discussions over the weekend with Chinese Vice Premier He Lifeng and international trade representative Li Chenggang had been "productive" and "robust".
He told reporters in Switzerland, where the talks took place, that "both sides showed a great respect".
Beijing said the negotiations had yielded "substantial progress", adding that the reductions served "the interest of the two countries and the common interest of the world".
Its commerce ministry urged Washington to "keep working with China and completely correct the wrong practice of unilateral tariff rises".
"It is hoped that the US will... maintain the healthy, stable and sustainable development of China-US economic and trade relations," the ministry said.
- How have markets reacted? -
Global stock markets rallied on the announcement.
Tai Hui, Asia-Pacific chief market strategist at JP Morgan Asset Management, said the cuts were "larger than expected", reflecting Washington and Beijing's understanding of the impact of tariffs on global economic growth.
Wei Yao, chief Asia-Pacific economist at Societe Generale, said the reductions would bring "substantial relief" for both economies.
And ANZ Bank analysts predicted that "both sides will focus on setting up a trade template, and a final deal will be reached before the US's 2026 mid-term election".
However, Wang Wen, dean of the Chongyang Institute for Financial Studies at Renmin University of China, warned that the deal "does not mean the resolution of structural contradictions between China and the United States".
- Is the trade war over? -
Far from it. The joint statement does not elaborate on what happens after the 90-day tariffs suspension.
"The US still has much higher tariffs on China than on other countries and still appears to be trying to rally other countries to introduce restrictions of their own on trade with China," said Mark Williams, chief Asia economist at Capital Economics.
"In these circumstances, there is no guarantee that the 90-day truce will give way to a lasting ceasefire."
The declaration also does not include sector-specific US tariffs on Chinese steel, aluminium and car imports.
China, meanwhile, has lodged complaints with the World Trade Organization against US "bullying" tactics.
And it has gone after US companies, scrapping orders for Boeing planes, probing Google for "anti-monopoly" violations, and adding fashion group PVH Corp. -- which owns Tommy Hilfiger and Calvin Klein -- and biotech giant Illumina to a list of "unreliable entities".
Beijing has also restricted exports of rare earth elements -- critical for making a wide range of products including semiconductors, medical technology and consumer electronics.
- What impact has the trade war had? -
China's trade surplus with the United States reached $295.4 billion last year, according to the US Commerce Department -- drawing Trump's ire.
Chinese leaders are reluctant to disrupt that status quo, but a worsening trade war weakens their ability to pin strong growth this year on exports, which hit a record high in 2024.
Analysts expect the levies to take a chunk out of China's gross domestic product, which Beijing's leadership have targeted to grow five percent this year.
US duties further threaten to harm China's fragile post-Covid economic recovery as it struggles with a debt crisis in the property sector and persistently low consumption.
And reciprocal tariffs are also having an impact in the United States, with uncertainty triggering a manufacturing slump last month and officials blaming them for an unexpected economic contraction during the first three months of the year.
Likely to be hit hardest are China's top exports to the United States, from electronics and machinery to textiles and clothing.
American manufacturers and consumers may also take a blow due to the crucial role of Chinese goods in supplying US firms.
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