Fed Versus Trump On Tariffs Impact Will Soon Be Put To Test
ThomasIt’s a widely held belief among economists that President Donald Trump’s tariffs will boost inflation notably over the next few months. But muted price increases so far have called that assumption into question, emboldening the White House and opening up divisions at the Federal Reserve.
It’s a widely held belief among economists that President Donald Trump’s tariffs will boost inflation notably over the next few months. But muted price increases so far have called that assumption into question, emboldening the White House and opening up divisions at the Federal Reserve.
Anticipation of firmer inflation has kept the US central bank from delivering interest-rate cuts this year as it waits to see what happens. The Trump administration is applying intense pressure on Fed Chair Jerome Powell to bring down borrowing costs, and two Fed governors in recent days have publicly diverged from Powell by asserting a cut could be appropriate as soon as July.
A pair of key reports in the coming weeks — the monthly jobs report due Thursday and another on consumer prices due July 15 — will be critical in determining the central bank’s next steps. Both are expected to finally begin reflecting the impact of tariffs, but any surprises could change the schedule for rate cuts.
“One of the things that makes it such a difficult situation is that we simply haven’t done this sort of experiment in the past,” William English, a professor at the Yale School of Management and former high-ranking Fed economist, said of the tariffs. “We’re outside the range of experience for a modern US economy, and so it’s very difficult to be confident about any forecast.”
Trump and his allies have escalated attacks on the Fed and Powell in recent weeks, motivated by data showing inflation remained tame through May despite the tariffs put in place. The president has lobbed several insults at Powell, calling him a “numbskull” and “truly one of the dumbest, and most destructive, people in Government.”
Other Trump administration officials and some congressional Republicans — oftentimes more reticent to weigh in on monetary policy — have joined in as well. Kevin Hassett, director of the White House National Economic Council, said on June 23 that there is “no reason at all for the Fed not to cut rates right now.”
Hassett, who is seen as a possible replacement for Powell when the Fed chair’s term expires next year, emphasized data due in the coming weeks: “I would guess that if they see one more month of data, they’re going to really have to concede that they’ve got the rate way too high,” he said.
