Fed calls out Trump trade, immigration policies as inflation risks
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Federal Reserve chair Jerome Powell at for a press conference in Washington D.C. last month. Photo: Andrew Cabellero-Reynolds/AFP via Getty Images
Federal Reserve officials are worried that President-elect Trump's trade and immigration policies will stoke inflation, according to minutes from their latest policy meeting released on Wednesday.
Why it matters: Higher tariffs and mass deportations could make America's bumpy battle against inflation more difficult. In that scenario, the Fed could keep interest rates higher for longer — and put the central bank on a collision course with Trump.
What they're saying: Fed officials agreed during a two-day policy meeting last month that inflation would continue to decline toward its 2% target. But the process might take longer than previously thought.
- Progress in bringing inflation down has already stalled and Trump's policies look more inflationary than not.
- "As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy," the minutes say.
- Officials also said supply chain disruptions from geopolitical events, strong consumer spending and quicker home price increases were other potential reasons why inflation might be harder to beat.
The big picture: The Fed lowered interest rates by a quarter percentage point at the end of its Dec. 17-18 meeting. But new economic projections released alongside that decision showed the median Fed official expected just two rate cuts in 2025 — half as many as anticipated just three months earlier.
- The projections also showed higher inflation for a longer period than previously thought. At a press conference, Fed chair Jerome Powell told reporters that some officials had factored potential impacts from Trump's policies into those projections.
The minutes released on Wednesday don't mention Trump by name, but they do show the extent to which officials fretted over the upside risks to inflation — even as details about potential trade and immigration policies remain fuzzy.
- All Fed officials agreed that "uncertainty about the scope, timing, and economic effects of potential changes in policies affecting foreign trade and immigration was elevated."
- Notably, a few officials said it could be hard to assess whether any upward pressure on inflation will be fleeting or stick around.
- "[I]t might be difficult to distinguish more persistent influences on inflation from potentially temporary ones, such as those stemming from changes in trade policy that could lead to shifts in the level of prices," the minutes show.
The other side: One Fed governor, Christopher Waller, said in a speech on Wednesday that he expects further rate cuts in 2025 and that tariffs wouldn't notably stoke inflation.
- "If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy," Waller said.
The bottom line: Trump said interest rates were too high at a press conference on Tuesday — reminiscent of his Fed criticism during his first term.
- No one knows how Trump's policies will weigh on the economy. For now, inflation is no longer on the back-burner for the Fed as it was when the central bank first started cutting rates.
