President-elect Donald Trump created a headache for the Federal Reserve even before he took office.
Inflation, a Fed objective dual mandate maintaining price stability with maximum employment remained a challenge through 2024, with price increases approaching – but not exceeding – the Fed’s 2% inflation target.
And Fed officials are increasingly concerned that their years-long struggle to bring down inflation will face new stumbling blocks as they approach the finish line.
According to the minutes of the latest Fed policy meeting Published earlier this month, “nearly all participants agreed that upside risks to the inflation outlook had increased,” citing recent “stronger-than-expected inflation numbers and the likely effects of potential changes in trade and immigration policy.
Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for businesses and restrictions on immigration, are considered inflationary. And these policies could further complicate the path forward for the central bank on interest rates.
According to updated economic forecasts from the Fed’s Summary of Economic Projections (SEP) released in December, the central bank expects core inflation to reach 2.5% next year, higher than its previous forecast of 2.2%, before calming down to 2.2% in 2026 and 2%. in 2027.
The prices were one of the most talked about Trump campaign promises.
In the United States, Congress generally sets tariffs, but the president has the power to impose some. special circumstancesand Trump has pledged to do so.
The president-elect has pledged to impose across-the-board tariffs of at least 10% on all trading partners, including 60% tariffs on Chinese imports and 25% levies on Mexico and the Canada.
Learn more: How do the rates work and who actually pays them?
“Our principle is that we obtain rates [in 2025]”, but they start relatively low and targeted,” Matthew Luzzetti, chief economist at Deutsche Bank, told Yahoo Finance, forecasting a cumulative 20% increase in tariffs on China, in addition to more targeted levies on Europe.
Luzzetti does not anticipate the universal base tariff threatened by Trump, but predicts persistent and persistent inflation. This is why he decided this year to cut interest rates to zero from the Federal Reserve.
Fed Governor Michelle Bowman earlier this month became the central bank’s newest official. share the same point of view rate cuts in 2025.
But rather than citing tariffs as a potential inflation challenge, Bowman sees another path for Trump-related economic changes to maintain upward pressure on prices.
