High Inflation Sows Debate About New Fed Playbook for Tariffs
The New York Times
Fresh tariffs amid high inflation are making the Fed’s job uniquely difficult and feeding uncertainty about what to expect for interest rates this year.
High inflation is stoking fresh debate about how the Federal Reserve should respond to President Trump’s sweeping plans to reorder the world economy through tariffs, leading to questions about whether old playbooks still apply.
On Saturday, Mr. Trump is poised to impose 25 percent tariffs on imports from Mexico and Canada as well as an additional 10 percent tariff on Chinese goods. That move comes on the heels of threats to impose hefty tariffs on Colombia, which were rescinded after its government complied with Mr. Trump’s demands to accept deported migrants.
Howard Lutnick, Mr. Trump’s nominee to oversee the Commerce Department and trade, said at a confirmation hearing on Wednesday that he favored “across-the-board” tariffs that would hit entire countries.
The volume of trade policy proposals is making the Fed’s already tricky job even more difficult and sowing uncertainty about what to expect from the central bank as it tries to fully wrestle inflation back to more normal levels.
Tariffs are broadly seen by economists and policymakers as likely to stoke higher prices for U.S. businesses and consumers at least initially, and over time weigh on growth. That, as well as Mr. Trump’s plans to also enact mass deportations, steep tax cuts and reduced deregulation, has complicated the path forward for the Fed, which is debating how quickly to resume rate cuts and by what magnitude after pressing pause this week.
What comes next is far from clear, leaving central bank officials to parse playbooks both old and new to formulate the right strategy.
