Fed Concerns Over Trump’s Policies Contributing to Inflation Risks, Minutes Show

At a meeting held a week after President Donald Trump’s inauguration, Federal Reserve officials expressed concerns that his proposed policies, particularly around trade and immigration, could drive inflation. Businesses reported to the Fed that they anticipated raising prices due to the potential for increased costs, such as from import tariffs. The minutes from the January 28-29 meeting revealed that while inflation had stalled since mid-2024, the uncertainty surrounding Trump’s policies created “upside risks” to inflation, with concerns about disruptions in supply chains and stronger-than-expected household spending.

The Fed’s participants noted that, despite their belief that inflationary pressures would ease in the near term, there were several factors that could hinder this disinflation process. Among those factors was the possibility that businesses would attempt to pass along higher input costs resulting from tariffs. Additionally, inflation expectations, which are a key concern for the Fed, had risen recently, adding more uncertainty to the outlook.

In a conversation following the release of the minutes, Atlanta Fed President Raphael Bostic elaborated on the complexity of the situation. He explained that while business leaders expressed interest in raising prices, there was uncertainty about consumer responses. The potential for tariffs to increase costs contrasted with efforts to deregulate industries, creating a mixed outlook for the economy. This uncertainty led to reduced confidence about future economic projections.

The Fed’s policymakers emphasized the need to keep interest rates steady until inflation was reliably heading toward the central bank’s 2% target. Despite the concerns, financial markets reacted minimally, with forecasts indicating that the Fed’s first rate cut of 2025 would likely occur in July. U.S. stocks saw only slight fluctuations following the release of the minutes.

SOURCE: REUTERS