The Federal Reserve is facing increased pressure to control inflation as consumer expectations surge sharply due to the trade war. A new survey by the University of Michigan found that respondents expect inflation to reach 6.7% over the next 12 months, the highest reading since 1981. This has prompted Fed officials to reiterate their priority on keeping inflation in check.
Fed Chair Jerome Powell described the survey as an “outlier,” but economists and policymakers are taking notice of the shift in consumer sentiment. Torsten Slok, chief economist at Apollo Global Management, said the Fed cannot ignore the growing evidence of rising inflation expectations.
The Fed’s goal is 2% inflation, which is now seen as a challenge with some officials predicting inflation to reach 4% this year. The central bank has toughened its talk on inflation, with officials warning that higher tariffs could have persistent effects on the economy.
While market measures of longer-run inflation expectations remain stable, policymakers are taking a cautious approach. Neel Kashkari, president of the Minneapolis Fed, said the Fed should be “very cautious” about any moves that indicated a weakening of its commitment to low inflation.
The Fed is likely to hold off on interest rate cuts until it sees tangible signs of economic deterioration. Austan Goolsbee, president of the Chicago Fed, confirmed that the bar for cuts had moved higher, citing concerns that prices may not be transitory and could become embedded in the system.
Source: https://www.nytimes.com/2025/04/11/business/economy/fed-inflation-trade.html