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Trump’s New Tariffs Intensify Fed’s Inflation and Growth Challenges

The Federal Reserve remains divided on policy as inflation risks rise and economic uncertainty deepens following the latest trade measures.

Federal Reserve Governor Philip Jefferson attends the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming, U.S., August 22, 2024. REUTERS/Ann Saphir/File Photo
Federal Reserve Vice Chair Philip Jefferson speaks at a conference of the National Association for Business Economics in Dallas, Texas, U.S., October 9, 2023. REUTERS/Ann Saphir/File Photo
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Overview

  • President Donald Trump announced new tariffs on April 2, 2025, raising concerns about higher inflation and slower economic growth, potentially leading to stagflation.
  • Federal Reserve officials are split on the appropriate monetary policy response, with some favoring rate cuts to support growth and others opting to maintain or even raise rates to curb inflation.
  • Vice Chair Philip Jefferson stated that the current interest rate range of 4.25%-4.50% is well-suited to address existing risks, with no immediate need for adjustments.
  • Board member Lisa Cook warned that tariffs on steel, aluminum, and autos could lead to widespread price increases across industries, complicating the Fed's inflation control efforts.
  • The Fed is closely monitoring the cumulative effects of trade, fiscal, and regulatory changes on the economy, as inflation remains above the 2% target and growth shows signs of slowing.