TechFlow news, on December 4, according to Jinshi News, Trump promised that upon returning to the White House, he would impose comprehensive tariffs on imported goods. During his first term, Federal Reserve staff simulated a similar scenario and concluded that inflation would accelerate but not persist for long. Since they ultimately determined that tariffs were weighing on the economy, they recommended cutting interest rates as the best remedy.
However, there are now two major obstacles to adopting such an approach. First, the Federal Reserve has not yet fully overcome post-pandemic price increases. Second, the Fed faced severe criticism for labeling those price rises as "transitory." As a result, the last thing Powell and his colleagues want is to downplay surging prices by suggesting they won't last.
"Even a price increase seen as temporary could prompt the Fed to raise interest rates or at least keep them on hold, preventing them from cutting rates as much as they might otherwise hope," said Justin Weidner, Deutsche Bank's U.S. economist. "They must acknowledge the actual inflation rate. Perhaps instead of using words like 'transitory' or 'temporary,' they could say something like 'inflation is elevated due to tariff effects,' clearly indicating this is a result of tariffs rather than necessarily being demand-driven."
