Federal Reserve Governor Adrienne Kugler said on Tuesday that the central bank should keep short-term borrowing costs unchanged until inflation risks subside because U.S. import tariffs have been significantly higher than expected and could put upward pressure on prices.

Kugler said she is closely watching how the Trump administration’s trade, immigration, fiscal policy and regulatory changes affect inflation and the labor market, but the “far greater” than expected tariffs have clearly caught her attention.

"I am also watching for any risks to the economic outlook, particularly upside risks to inflation and downside risks to employment," Kugler said in a speech at the University of Minnesota's Heller-Herwich Institute for Economics.

She said the Federal Reserve's policies are "well prepared" to respond to changes in the economy. "As a result, I would support maintaining the current policy rate as long as upside risks to inflation persist and economic activity and employment remain stable."

The Federal Reserve meets in two weeks to decide policy, and policymakers have made clear they intend to keep the policy rate at 4.25%-4.50% while awaiting more clarity on the magnitude, possible timing and economic impact of tariffs.

Kugler noted that the U.S. economy likely slowed in the first quarter, with a possible boost as households and businesses try to make some "front-load" purchases ahead of impending tariffs.

She noted that recent volatility in financial markets was also a concern. "If financial conditions continue to tighten, this could weigh on future economic growth."

She said the labor market was solid and broadly balanced, but that inflation progress had slowed and remained above the Fed's 2% target. She added that short-term inflation expectations have risen, but long-term expectations remain stable.

She said that because uncertainty is high, the Fed must pay close attention to real-time data to detect any economic changes as quickly as possible, because any interest rate adjustments will take time to have an impact on actual conditions.