American consumers may face higher prices if President Donald Trump proceeds with his proposed tariffs, the US Federal Reserve has cautioned.
According to minutes from the Federal Reserve’s January meeting, released on Wednesday, officials expressed concerns that Trump‘s tariff policies could disrupt the “disinflation process” and hinder efforts to stabilize prices.
The Fed’s minutes revealed that businesses across various regions indicated they would likely pass the increased costs of tariffs on to consumers. “Business contacts in a number of districts had indicated that firms would attempt to pass on to consumers higher input costs arising from potential tariffs,” the report stated.
These concerns come as the Federal Reserve has faced criticism from Trump for not cutting interest rates more aggressively, following its decision to leave rates unchanged in January. Trump has advocated for lower interest rates, arguing they would benefit borrowers and stimulate economic growth.
The Fed’s minutes also highlighted broader uncertainties surrounding economic policies, particularly related to trade, immigration, and regulatory changes. “Elevated uncertainty regarding the scope, timing, and potential economic effects of possible changes to trade, immigration, fiscal, and regulatory policies” was noted as a concern.
Moreover, the report indicated that some committee members found it challenging to differentiate between persistent changes in inflation and temporary fluctuations caused by the implementation of new government policies. This uncertainty has contributed to the central bank’s cautious approach to adjusting interest rates.
At the January meeting, the Federal Reserve opted to keep its key interest rate steady, ranging between 4.25% and 4.5%, signaling a pause after several rate cuts in 2024. Fed Chair Jerome Powell had previously said the central bank was not “in a hurry” to cut rates further, citing the economic uncertainty ahead.
Looking forward, analysts predict that the Fed will likely make only one interest rate cut in 2025, with the possibility of no cuts at all.
Trump’s Criticism of the Federal Reserve
Trump has openly criticized the Federal Reserve for not lowering interest rates sooner, sparking debate over whether the president will respect the traditional independence of the Fed, which is tasked with focusing on the long-term health of the US economy without political influence.
Powell emphasized that he has had “no contact” with the president and that the Federal Reserve’s decisions are driven by economic data rather than political pressure.
Nonetheless, Powell faced questions about the Fed’s handling of other directives from the White House, including the cancellation of diversity programs and the bank’s withdrawal from a global group focused on the risks of climate change to the financial system. These challenges underscore the difficulties the Fed may encounter in maintaining its independence amid heightened political scrutiny.
