Trump is making the Fed’s tough inflation battle more complicated

President-elect Donald Trump gave the Federal Reserve a headache before he even took office.

Inflation, part of the Federal Reserve Dual mandate Maintaining price stability with maximum employment remained a challenge throughout 2024, with price increases approaching, but not exceeding, the Fed’s 2% inflation target.

Fed officials are becoming more concerned that their years-long struggle to lower inflation will run into more hurdles near the finish line.

According to Minutes of the Federal Reserve’s latest policy meeting Released earlier this month, “nearly all respondents viewed upside risks to the inflation outlook as having increased,” citing “stronger-than-expected recent readings on inflation and the potential impacts of potential changes in trade and immigration policy.”

Trump’s proposed policies, such as higher tariffs on imported goods, corporate tax cuts, and restrictions on immigration, It is seen as inflationary. And those policies It can add complexity The central bank’s path forward regarding interest rates.

According to updated economic forecasts from the Fed’s Summary of Economic Prospects (SEP) published in December, the central bank expects core inflation to reach 2.5% next year, higher than its previous forecast of 2.2%, before cooling to 2.2% in In 2026 and 2%. In 2027.

The definitions were One of the most talked about Trump campaign promises.

In the United States, tariffs are usually set by Congress, but the president has the authority to impose certain tariffs Special circumstancesTrump has pledged to do so.

The president-elect pledged to impose comprehensive tariffs of at least 10% on all trading partners, including a 60% tariff on Chinese imports and 25% duties on both Mexico and Canada.

Read more: How do tariffs work, and who really pays them?

“Our bottom line is that we get tariffs (in 2025), but they start relatively low and targeted,” Matthew Luzetti, chief economist at Deutsche Bank, told Yahoo Finance, forecasting a 20% cumulative increase in tariffs on China, in addition to… More targeted fees. On Europe.

Luzetti does not expect the global base tariffs that Trump threatened, but he expects steady inflation to continue. For this reason, he agreed to cut interest rates to zero from the Federal Reserve this year.

Federal Reserve Governor Michelle Bowman earlier this month became the central bank’s newest official To share the same opinion Lowering interest rates in 2025

But rather than pointing to tariffs as a potential challenge to inflation, Bowman sees another path for Trump-related economic shifts to continue upward pressure on prices.

The story continues