By Ann Saphir

(Reuters) -President Donald Trump's permanent 25% tariff on imported autos has expanded the global trade war, feeding expectations for higher prices for cars and other products, but doing little to settle the debate about how policies of his two-month-old administration will affect the U.S. economy.

With more tariff announcements looming next week, Federal Reserve policymakers remain in a holding pattern on interest rates. With surveys showing signs of economic trepidation and a drop in confidence, central bankers are watching to see if this spills into "hard" data like the still-low unemployment rate. They are also watching whether household and business fears of surging prices rekindle inflation that had been cooling.

Fed officials remember that tariffs during Trump's first administration did trigger several rate cuts to cushion weakening output. Still, the high inflation of the early 2020s could set the economy up for a different trajectory this time.

"Tariffs on one hand push up prices a little bit, so maybe that's inflationary (and means) a higher interest rate path, if prices are higher," Minneapolis Fed President Neel Kashkari said on a visit to Detroit Lakes, Minnesota this week. "But then, they're also slowing economic activity, which would push down interest rates, all else being equal," he told the local chamber of commerce on Wednesday.

"I look at those two things and think, OK, just it's kind of a wash -- (we should) just sit where we are for an extended period of time until we get clarity." Kashkari said.

Tariffs are just part of the equation. Fed Chair Jerome Powell noted last week that policymakers must gauge the total effect of the Trump administration plans, including cuts to federal spending and taxes, along with looser regulations and tighter immigration. He noted that the impact of all these policies put together, along with tariffs, is highly uncertain.

On Thursday, traders of short-term interest-rate futures kept betting on three Fed rate cuts this year, likely starting in June. Most economists expect a little less easing, in line with what Fed policymakers projected last week after they left the policy rate in its current range of 4.25%-4.50%.

Fed officials cited policy uncertainty and strong economic data that does not require any immediate change in short-term borrowing costs.

Inflation by the Fed's preferred measure has been running half a percentage point higher than its 2% target. On Wednesday, St. Louis Fed President Alberto Musalem said that if inflation expectations drive that higher, he might even support a rate hike. For now, that option appears to be only a distant possibility for most of his colleagues.

Other policymakers, like Chicago Fed President Austan Goolsbee, say they still see room for rate cuts over the coming year. They have not expressed worries that unemployment, now at 4.1%, will rise sharply, but have voiced the expectation that inflation will trend lower.

They will be watching upcoming data including Friday's read on inflation in the personal consumption expenditures index, and next Friday's monthly jobs report from the Labor Department.

"We shouldn’t get lulled into a false sense of Fed policy stability," wrote EY Senior Economist Lydia Boussour on Thursday. "A reactionary monetary policy stance means policy direction could rapidly turn more dovish on weaker economic and labor market data, just like it could turn hawkish with hotter inflation and inflation expectations readings."