The Federal Reserve has warned that President Trump’s proposed tariffs could lead to higher prices for American consumers. Minutes from the Fed’s January meeting, released on Wednesday, revealed that members of the Federal Open Market Committee (FOMC) believe Trump’s policies might hinder efforts to bring down inflation. According to the minutes, “Business contacts in a number of districts had indicated that firms would attempt to pass on higher input costs arising from potential tariffs to consumers.” The Fed also noted “elevated uncertainty regarding the scope, timing, and potential economic effects of possible changes to trade, immigration, fiscal, and regulatory policies.”
The release of these comments comes as Trump criticizes the Fed for leaving interest rates unchanged at the January meeting.
The minutes showed the central bank’s readiness to hold rates steady amid stubborn inflation and economic policy uncertainty. During the meeting, the Fed left the key interest rate unchanged at 4.25% to 4.5%, pausing after a string of cuts late last year. Fed Chair Jerome Powell has said the bank was not “in a hurry” to cut more rates, given significant uncertainty about the economic trajectory.
Fed warns of potential price hikes
Analysts predict the Fed will likely cut the benchmark interest rate only once in 2025, with a significant possibility of no rate cuts at all. Trump has consistently attacked the Fed for its decisions, particularly after policy meetings where no changes were made to interest rates.
The minutes also noted that “a couple of participants remarked that, in the period ahead, it might be tough to distinguish between relatively persistent changes in inflation and more temporary changes that might be associated with the introduction of new government policies.”
Trump’s campaign promises included calls for lower interest rates, aiming to relieve borrowers. This has sparked debate on whether he will uphold the tradition of Fed independence, which should keep it focused on the long-term health of the US economy and away from politics. Powell has told reporters that he had “no contact” with Trump and emphasized that the bank was focused on data in setting rates.
However, questions Powell faced regarding the handling of new directives from the White House, including the cancellation of diversity programs and withdrawal from a global group of central banks focusing on climate change risks, underscored the challenge of keeping the Fed above the political fray. The Fed’s warning comes as US inflation unexpectedly increased last month, pushing up Americans’ cost of living.
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