Trump makes the Fed’s inflation challenge more complicated
President-elect Donald Trump has created a headache for the Federal Reserve before taking office.
Inflation, part of the Fed Dual power Maintaining price stability with high employment remains a challenge throughout 2024, with rate hikes looming — but not breaching the Fed’s 2 percent inflation target.
And Fed officials are concerned that their years-long battle to bring down inflation will hit more hurdles at the finish line.
As of 2011 Minutes from the Fed’s latest policy meeting “Nearly all participants assessed that the downside risks to inflation have increased,” a release earlier this month said, citing recent “stronger-than-expected readings on inflation and potential changes to trade and immigration policy.”
Trump’s proposed policies, such as tariffs on imported goods, corporate tax cuts and immigration bans, are considered inflationary. And these policies drive central bank interest rates forward.
According to the revised economic forecast from the Fed’s Summary of Economic Projections (SEP), published in December, the central bank sees inflation at 2.5 percent next year before slowing to 2.2 percent in 2026, up from its previous forecast of 2.2 percent. In the year 2027
One of the most talked about promises of the Trump campaign was tariffs.
In the United States, Congress typically sets tariffs, but the president has the power to impose some. Special conditionsand Trump has promised to do just that.
The president-elect has pledged to impose blanket tariffs on all trading partners, including 60% tariffs and 25% tariffs on Mexico and Canada.
Read more: How do tariffs work, and who exactly pays them?
“Our baseline is that we will get tariffs (by 2025), but they will start relatively low and targeted,” Deutsche Bank chief economist Matthew Luzetti told Yahoo Finance, estimating a 20% cumulative tariff increase on China. In Europe.
Luzetti doesn’t foresee the universal threshold tariffs that Trump has threatened, but foresees continued sticky inflation. As a result, this year the Federal Reserve has invited zero interest rates.
Earlier this month, Fed Governor Michelle Bowman became the last central bank official to agree to a similar rate cut in 2025.
But instead of citing tariffs as a challenge to inflation, Bowman sees another way for Trump-related economic changes to put more pressure on prices.