Federal Reserve officials are assessing the impact of tariffs on inflation, expressing concerns over supply chains, public expectations, and rising prices as Trump’s trade policies take shape.
During Trump’s first term, tariffs led to a weaker global economy, prompting the Fed to cut interest rates. Now, with inflation still a concern and consumer spending strong, the uncertainty surrounding new tariffs is unsettling policymakers. The administration’s unpredictable approach—raising tariffs on China, delaying others for Mexico and Canada, and targeting steel and aluminum—may amplify inflation fears.
Atlanta Fed President Raphael Bostic warns that prolonged tariff debates could raise inflation expectations, forcing the Fed to act. However, Fed Governor Christopher Waller downplays the risk, urging a data-driven approach rather than policy paralysis. Minutes from the Fed’s January meeting may shed more light on these debates.
The administration argues that tax cuts and deregulation will curb inflation, but Boston Fed research suggests tariffs of 25% on Mexico and Canada and 10% on China could add 0.8 percentage points to inflation. Previously, retailers absorbed tariff costs, but businesses now appear more willing to pass them on to consumers.
While the Fed still sees inflation on track to return to 2%, signs of concern are emerging. Consumer surveys show mixed inflation expectations, and economic conditions—low unemployment, strong growth, and businesses keen to raise prices—suggest a different outcome than before.
Chicago Fed President Austan Goolsbee notes that companies may have already outsourced easily replaceable goods from China, leaving more critical ones subject to higher inflation risk. Supply chain disruptions could further extend price pressures, making inflation a persistent challenge.
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