TechFlow news, according to Jinshi News, "the Fed's mouthpiece" Nick Timiraos wrote that as Trump considers bolder use of tariffs, a key question looms over the Federal Reserve: To what extent would any price increases stimulate public expectations of higher inflation? Whether and when the Fed resumes rate cuts will depend largely 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 negative impact of trade conflicts on business sentiment and investment might outweigh the potential inflationary effects of tariffs. At that time, tariffs "didn't create inflation in terms of economic activity, because it wasn't an inflationary period," said Steven Kamin, who served as the Fed's head of international finance at the time and now works at the American Enterprise Institute.
The Fed might respond differently this time after tariff hikes take effect, given that the U.S. has just emerged from a period of high inflation. He 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 keep interest rates higher than it otherwise would have.
