PANews reported on January 29 that according to Jinshi, "Federal Reserve mouthpiece" Nick Timiraos wrote that as Trump considers using tariffs more boldly, a key question hangs over the Fed: To what extent will any price increases stimulate public expectations of higher inflation rates? When or whether the Fed resumes rate cuts depends largely on the inflation outlook, and this year's inflation outlook may depend on whether Trump makes good on his threat to raise tariffs.
The Fed cut interest rates in 2019 as the trade war escalated during Mr. Trump’s first presidency. The central bank worried that the trade war’s hit to business sentiment and investment could outweigh the potential impact of higher prices from tariffs. The tariffs at the time “were not inflationary in terms of their impact on economic activity because it was not an inflationary period,” said Steven Cumming, then director of the Fed’s international finance division and now at the American Enterprise Institute.
The Fed may react differently this time after the tariff increase takes effect because the U.S. has just gone through a period of great inflation. He expects the Fed "will indeed be more inclined to oppose tariffs this time than last time" and will keep interest rates higher than before if tariffs are enacted.
