President Trump’s plans to escalate his use of tariffs on the country’s biggest trading partners have raised concerns among economists that they may worsen inflation, despite claims by some that the measures would actually help curb prices. New inflation data has shown price pressures intensifying, with many experts warning that tariffs could add as much as 0.8 percentage point to core inflation.
Experts say that while tariffs are typically viewed as policies that lead to just a one-off increase in prices, the actual impact depends on various factors such as how they are phased in and whether businesses pass on higher costs to consumers. Some experts predict that costs tied to tariffs on certain household goods would be passed on to consumers, similar to what happened during Trump’s first trade war in 2018.
The Fed has opted to stand pat on further interest rate cuts for the time being, citing a need for more progress before inflation returns to its 2% target. Trump has expressed his desire for lower interest rates, which puts the Fed in an “uncomfortable situation” trying to distinguish between what is a sign of overheating and what is just a natural fluctuation.
As the situation becomes increasingly uncertain, economists warn that policymakers need to be cautious not to unleash stagflationary shocks. The evidence suggests that Americans remain largely confident that inflation will come down over time, but the current circumstances make it essential for policymakers to take a more nuanced approach to managing inflation expectations.
Source: https://www.nytimes.com/2025/02/13/business/trump-inflation-tariffs.html