The US is in a unique position to weather potential tariffs due to its strong economy, which might provide some cushioning against the negative impacts on growth. However, if tariffs disrupt Americans’ economic gains, they could also lead to higher inflation and make it harder for the Federal Reserve to control price pressures.
New data released on Friday shows that the core Personal Consumption Expenditures Price Index rose 2.8% in the past year, above the Fed’s 2% target. Consumer spending was solid, rising 0.7% in December, but the personal saving rate fell to 3.8%, down from November.
Fed officials are cautious about the impact of tariffs on inflation and economic growth. “We’ve just come through a high inflation period,” said Fed Chair Jerome Powell. “There are lots of places where that price increase from the tariff can show up between the manufacturer and the consumer.”
However, with the economy holding strong despite higher interest rates, some policymakers are concerned about the potential risks to inflation. In a speech on Friday, Fed Governor Michelle Bowman warned that global supply chains remain vulnerable to disruption and that interest rates might not be enough to restrict the economy.
As President Trump prepares to impose tariffs on North American allies and China, economists warn of unpredictable effects on the US economy. The White House has announced plans for 25% tariffs on Mexico, Canada, and China, which could lead to significant economic pain for businesses and consumers if retaliation ensues.
Source: https://www.axios.com/2025/01/31/trump-tariffs-canada-mexico-inflation