The Federal Reserve Bank of Boston has issued a report that Trump’s trade tariffs could raise inflation by 0.8 percentage points, according to the central bank’s preferred price pressure gauge. The proposed 25% tariff on Mexico and Canada, combined with a 10% tariff on China, would push up underlying price pressures.
The report comes as the Fed is still facing inflation above its 2% target, with the personal consumption expenditures price index (PCE) increasing by 2.6% in December from the same period last year. The core PCE, which excludes food and energy, was up 2.8% over the same period.
Boston Fed President Susan Collins warned that broad-based tariffs would affect not only final goods but also intermediate goods, leading to price increases for American consumers.
The report’s authors noted that while some of the inflationary pressure might be dampened by general equilibrium effects, including retaliatory actions and domestic monetary policy, their analysis assumed that tariffs would be passed along and accepted by consumers.
Source: https://www.reuters.com/markets/us/boston-fed-maps-out-inflation-response-trump-trade-tariffs-2025-02-06