Trump's tariff plans raise concerns at the Fed, with officials delaying rate cuts amid inflation risks
In January, The US Federal Reserve officials agreed to keep interest rates unchanged until inflation shows further signs of decline.
According to meeting minutes released Wednesday, they expressed concerns about potential inflationary pressures from US President Donald Trump's proposed tariffs, as reported by CNBC.
The Federal Open Market Committee (FOMC) unanimously decided to keep the federal funds rate steady at 4.25 percent to 4.5 percent after three consecutive cuts totaling one percentage point in 2024.
This decision allows policymakers time to assess economic conditions before making additional adjustments.
Officials highlighted potential changes in trade and immigration policies as factors that could elevate inflation, alongside strong consumer demand.
Business contacts in several Federal Reserve districts indicated intentions to pass on higher input costs from potential tariffs to consumers.
Participants also acknowledged “upside risks to the inflation outlook,” emphasizing concerns that policy changes might keep inflation above the American central bank’s 2 percent target.
Trump has already implemented some tariffs and recently suggested plans to expand them.
In remarks to reporters, he mentioned potential 25 percent duties on autos, pharmaceuticals, and semiconductors that would escalate throughout the year.
While specifics were not provided, these proposed tariffs could further impact prices at a time when inflation has moderated but remains above the Fed’s goal.
Recent inflation indicators have been mixed. US Consumer prices rose more than expected in January, with the annual inflation rate reaching 3 percent, the highest since June 2024.
Reuters reported that the US's producer prices also increased solidly in January, suggesting a pickup in inflation and reinforcing views that the Federal Reserve may delay further rate cuts until the second half of the year.
Despite concerns over trade policy and inflation, the meeting minutes reflected optimism about the economic outlook, citing expectations of easing government regulations and tax policy changes.
Since the meeting, most central bank officials have maintained a cautious stance on future policy moves.
Federal Reserve Vice Chair Philip Jefferson stated that the central bank has time to consider its next monetary policy move, given the robust economy and inflation still above target, as per Reuters.
Fed Chair Jerome Powell has largely avoided speculation on the tariffs' effects but emphasized that the central bank's decisions are based on economic analysis rather than political pressures.
The Fed’s benchmark overnight borrowing rate remains set between 4.25 percent and 4.5 percent.
