"Fed's Megaphone": Tariffs become a key factor in whether and when the Fed will resume rate cuts

January 29th, Jinshi Data News, ‘Fed megaphone’ Nick Timiraos wrote that as Trump considers using tariffs more boldly, a key question hovers over the Fed: To what extent will any pump in prices stimulate the public’s expectations of higher inflation? The timing and extent of the Fed’s decision to cut interest rates will largely depend on the inflation outlook, which in turn may be influenced by whether Trump follows through on his threat to increase tariffs. When Trump first took office, the trade war escalated and the Fed dropped interest rates in 2019. The Fed is concerned that the impact of the trade war on business sentiment and investment may outweigh the potential effects of a pump in prices caused by tariffs. At the time, tariffs had ‘no inflationary impact on economic activity because it wasn’t an inflationary period,’ said Steven Camarota, former head of the Fed’s International Finance Department and now employed at the American Enterprise Institute. This time, the Fed may react differently after the tariff increase takes effect, as the U.S. has just experienced a period of high inflation. He expects the Fed to ‘be more inclined to oppose tariff increases in this round than in the previous round,’ and if the policy of increasing tariffs is implemented, the Fed will maintain interest rates at a higher level than before.