Trump’s Tariff Talk Is Making the Fed Cautious About Cutting Interest Rates | Global News Avenue

President-elect Donald Trump has said he likes low interest rates, but his rhetoric about imposing tariffs is forcing the Federal Reserve to keep interest rates higher for longer, especially as post-pandemic inflation remains stubborn.

Fed Lower base interest rates Wednesday’s lead was a quarter of a percentage point. However, central bankers have lowered expectations for further tariff reductions in 2025. That’s partly because officials are unsure how Trump’s recent pledge to impose tariffs will go.

Fed Chairman Jerome Powell said at a news conference after the rate decision that some central bankers took into account uncertainty about how tariffs would be implemented or affect inflation and the economy when making their forecasts this week.

“It’s common sense that when the road is uncertain, you go slower,” Powell said. “It’s like driving on a foggy night or walking into a dark room full of furniture; you Just slow down.”

Fed wary of renewed inflation

Trump recently said he would impose tariffs on the following products Canada, Mexico and ChinaAmerica’s largest trading partner.

Economists generally believe that import taxes will increase inflation because businesses pass higher costs on to consumers. However, they are less sure how big the impact of tariffs will be on inflation.

Fed officials may be worried about the inflationary impact of the tariffs because they have still not fully eliminated the inflation that began after the pandemic shutdowns. Although inflation is still a long way from its summer 2022 highs, still stubbornly higher than the Fed’s 2% annual interest rate target.

The Fed scaled back its forecast for the year ahead amid the risk of tariffs reigniting inflation. On average, Fed officials expect they will cut the federal funds rate twice in 2025, instead of the four cuts expected in September.

Fed officials await more details

Trump has yet to release important details of his tariff plan, and some financial market participants are betting that the tariff threat will mainly Used to win trade offers rather than put it into practice.

“We know very little about actual policy,” Powell said. “It’s premature to try to draw any conclusions. We don’t know which countries’ goods will be subject to tariffs, for how long or at what level. We don’t know Will retaliatory tariffs be imposed?”

Trump and Powell clashed over interest rates. During his first term as president, Trump threatened to fire Powell for keeping interest rates too high. Powell’s term was extended to 2026, and Trump said earlier this month that he Said he wouldn’t Try to replace him before then.