President-elect Donald Trump has been a headache for the Fed even before he took office.
Inflation, part of the Fed dual mission The challenge of maintaining price stability at maximum employment will remain a challenge through 2024, with price increases approaching but falling short of the Fed’s 2% inflation target.
And Fed officials are increasingly worried that their years-long fight to rein in inflation will hit another roadblock near the finish line.
According to Minutes of the Fed’s latest policy meeting A report released earlier this month found that “nearly all participants judged that the upside risks to the inflation outlook have increased” and that recent “stronger-than-expected readings on inflation and the potential for trade and immigration policy “Possibility of impact due to major changes.”
President Trump’s proposed policies, including high tariffs on imported goods, tax cuts for businesses and immigration restrictions, are seen as inflationary. And such policies could further complicate the central bank’s future direction of interest rates.
According to the latest economic forecast from the Federal Reserve’s Summary of Economic Prospects (SEP) released in December, the central bank expects core inflation to reach 2.5% next year, higher than its previous forecast of 2.2%, and 2.2% and 2% in 2026. is expected to decline. In 2027.
Tariffs are one of the most talked about promises of the Trump campaign.
In the United States, Congress typically sets tariffs, but the President has the authority to impose specific tariffs based on: special circumstancesand Trump has vowed to do so.
The president-elect has pledged to impose blanket tariffs of at least 10% on all trading partners, including a 60% tariff on imports from China and 25% on both Mexico and Canada.
read more: How do tariffs work and who actually pays them?
“Our basic policy is to receive the tariff. [in 2025]but they start out relatively low and targeted,” Matthew Ruzzetti, chief economist at Deutsche Bank, told Yahoo Finance, adding that in addition to more targeted taxes on Europe, tariffs on China would accumulate. We expect it to increase by 20%.
Ruzzetti doesn’t expect the universal basic tariffs that President Trump has threatened to impose, but he does expect persistent inflation to continue. That’s why he has priced in the Federal Reserve’s zero interest rate cut this year.
Earlier this month, Federal Reserve President Michelle Bowman became the latest central bank official to share a similar view about a 2025 rate cut.
But rather than citing tariffs as a potential inflationary challenge, Bowman sees other paths to Trump-related economic transformation to maintain upward pressure on prices.
