Inflation Concerns Rise as Trump and Fed Downplay Economic Pressures
Washington: Inflation has risen in three of the last four months and is slightly higher than it was a year ago, when it helped sink then-Vice president Kamala Harris’ presidential campaign. Yet you wouldn’t know it from listening to President Donald Trump or even some of the inflation fighters at the Federal reserve.
Trump told the United nations General Assembly late last month, “Grocery prices are down, mortgage rates are down, and inflation has been defeated.”
And at a high-profile speech in August,just before the Fed cut its key interest rate for the first time this year,Federal Reserve Chair Jerome Powell said,”Inflation,though still somewhat elevated,has come down a great deal from its post-pandemic highs.upside risks to inflation have diminished.”
Yet dismissing or even downplaying inflation while it is still above the Fed’s target of 2% poses big risks for the White House and the Federal Reserve. For the Trump administration, it could find itself on the wrong side of a potent issue: Surveys show that many americans still see high prices as a major burden on their finances.
The Fed may be taking an even bigger gamble: It has cut its key interest rate on the assumption that the Trump administration’s tariffs will only cause a temporary bump up in inflation.If that turns out to be wrong, if inflation gets worse or remains elevated for longer than expected, the Fed’s inflation-fighting credibility could take a hit.
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That credibility plays a crucial role in the Fed’s ability to keep prices stable. If Americans are confident that the central bank can keep inflation in check, they won’t take steps, such as demanding sharply higher pay when prices rise, that can launch an inflationary spiral. Companies frequently enough increase prices further to offset higher labour costs.
But Karen Dynan, a senior fellow at the Peterson Institute for International Economics, said this week that with memories of pandemic-era inflation still fresh and tariffs pushing up the cost of imported goods, consumers and businesses could start to lose confidence that inflation will stay low.
“If that proves to be the case, in hindsight it will be that the Fed cuts — and I do expect several more — are going to be seen as a mistake,” Dynan said.
So far, the Trump administration’s tariffs haven’t lifted inflation as much as many economists expected earlier this year. And it remains far below its 9.1% peak three years ago. Still, consumer prices increased 2.9% in August from a year earlier, up from 2.6% at the same time last year and above the Fed’s 2% target.
The government is scheduled to release the September inflation report on Wednesday, but the data will probably be delayed by the government shutdown.
Tariffs have pushed up the cost of many imported items,including furniture,appliances,and toys. the cost of long-lasting manufactured goods rose nearly 2% in August from a year earlier. It was a modest gain, but it comes after nearly three decades during which the cost of such items mostly fell.
The cost of some everyday goods is still rising more quickly than before the pandemic: Grocery prices moved up 2.7% in August from a year ago, the largest gain, outside the pandemic, si
US Inflation Concerns Rise as tariffs Add to Price pressures
Washington D.C. – Rising inflation in the United States is prompting concern among Federal Reserve (Fed) policymakers, with tariffs imposed by the Trump administration contributing to increased costs for businesses and, ultimately, consumers. While some officials believe other economic trends may offset these pressures, the risk of losing public confidence in the Fed’s ability to control inflation remains a notable worry.
Several businesses are already feeling the impact of tariffs. John Butler, president of SS Butler Company, a supplier of heating, ventilation, and air conditioning (HVAC) equipment, explained that while he has attempted to negotiate with suppliers to absorb some of the tariff costs, they are unable to cover the full amount. “At the end of the day, we can’t absorb the entirety of it and our factories can’t absorb the entirety of it,” Butler stated, adding that “we’ve had to pass along some of the increases to consumers.”
This situation is raising concerns at the Federal Reserve. jeffrey Schmid, president of the Federal Reserve Bank of Kansas City and a voting member on interest rate decisions, warned on Monday that inflation stemming from a loss of confidence in the central bank is particularly difficult to combat. He emphasized the importance of maintaining the Fed’s credibility on inflation, stating, “History has shown that while all inflations are universally disliked, not all inflations are equally costly to fight.” https://www.kansascityfed.org/
However, not all Fed officials share the same level of concern. Stephen Miran,a Fed governor appointed by President Trump,expressed a more optimistic outlook on Tuesday. He suggested that a slowdown in rental costs will likely contribute to a reduction in underlying inflation in the coming months. Additionally, Miran believes that decreased immigration due to the administration’s policies will reduce overall demand, thereby easing inflationary pressures. https://www.federalreserve.gov/
“I’m more sanguine about the inflation outlook than a lot of other people are,” Miran said.
The differing viewpoints within the Fed highlight the complexity of assessing the current inflationary habitat and the potential impact of various economic factors,including trade policies.
(This story has not been edited by NDTV staff and is published from a syndicated feed.)