Fed's mouthpiece: Tariffs become a key factor in whether and when the Fed resumes cutting rates
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Fed's mouthpiece: Tariffs become a key factor in whether and when the Fed resumes cutting rates
If tariffs are imposed, the Federal Reserve will keep interest rates higher than originally expected.
Navigating Web3 tides with focused insightsTechFlow news, according to Jinshi News, "Fed Whisperer" Nick Timiraos wrote that as Trump considers using tariffs more aggressively, a key question looms over the Federal Reserve: To what extent would any price increases fuel public expectations of higher inflation? Whether and when the Fed resumes cutting rates will depend heavily on the inflation outlook—which in turn may hinge on whether Trump follows through on his threats to raise tariffs.
During Trump's first presidency, trade tensions escalated and the Fed cut interest rates in 2019. The central bank was concerned that the impact of trade conflicts on business sentiment and investment might outweigh the potential inflationary effects of tariff-driven price increases. At the time, tariffs "didn't create inflation because it wasn't an inflationary period," said Steven Kamin, former head of the Fed’s international finance division and now at the American Enterprise Institute.
This time, the Fed could respond differently after tariff hikes take effect, given that the U.S. has just emerged from a period of high inflation. Kamin expects the Fed "would indeed be more inclined to oppose new tariffs in this round than in the last," and if new tariffs are implemented, the Fed would likely keep interest rates higher than they otherwise would have been.
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