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US Fed Official Warns: Inevitable Tariffs Will Fuel Inflation

oleh admin | Mar 28, 2025 | economic policy, economics, inflation, macroeconomics policy, politics

WASHINGTON, D.C. — A top Federal Reserve official stated on Thursday that it appears “unavoidable” that Donald Trump’s tariff proposals will lead to higher near-term inflation, though this rise might not last long.

After coming back to the White House, Trump has issued threats about imposing tariffs on major trade allies — such as China, Canada, and Mexico — but then partially rescinded these measures, leading to uncertainty among both investors and political figures.

He has levied a 25 percent duty on steel and aluminum imports, declared a 25 percent tariff on incoming cards, and intends to implement additional tariffs the following week.

“Tariffs appear certain to drive up inflation in the short term,” said Boston Fed President Susan Collins at an event held in Boston.

“If an uptick in pricing levels filters through to inflation rather swiftly,” stated Collins, who holds a voting position on the Federal Reserve’s interest-rate setting panel this year. “Subsequently, fundamental inflationary pressures will start playing out.”

“So my basic perspective is shaped within that framework,” she went on, noting that should further tariff rounds occur or become wider-ranging, the resulting inflationary effects might likely “linger longer.”

Collins’ remarks mirror those of her fellow Federal Reserve member and St. Louis Fed President Alberto Musalem, who similarly holds a voting position on the U.S. central bank’s interest-rate committee this year.

On Wednesday, Musalem contended that tariffs might cause a probable immediate and short-term rise in prices, along with an additional indirect effect that could exert a more enduring influence on inflation.

The team at the St. Louis Fed calculated that the overall impact on inflation might be as high as 1.2 percentage points — a considerable rise considering that inflation continues to stay above the Federal Reserve’s longstanding objective of 2%.

The Federal Reserve has a two-part mission to address both inflation and unemployment, mainly through adjusting its primary interest rate up or down.

If inflation remains stuck above the Fed’s target and the labor market remains relatively healthy, the Fed could be forced to pause rate cuts for longer, which would keep the cost of borrowing for both consumers and businesses elevated.

Surveys measuring consumer confidence have indicated a significant drop following President Trump’s return to office, as participants expressed worries regarding the impact of tariffs on the economy and voiced concerns over increasing inflation rates.

Earlier this month, Fed officials penciled in two rate cuts this year, while raising their inflation outlook and cutting their forecast for economic growth.

By Morkporkpor Anku

Accra, March 24, GNA – Dr. Johnson Asiama, Governor of the Bank of Ghana, has suggested implementing strategies to increase transparency regarding the Monetary Policy Committee’s decisions. This could involve releasing details of individual votes or improving the explanatory content within policy announcements.

He mentioned that the committee also had to focus on making the presentation of forecasts easier for both the general public and market participants, ensuring they could more readily grasp the fundamental policy narrative behind them.

At the commencement of the 123rd routine session of the Monetary Policy Committee (MPC) in Accra on Monday, the Governor delivered an address.

He stated that these modifications would enhance reliability and foster greater confidence in the policy structure.

Dr Asiama said the transparency of the MPC decision-making process and the communication of the forward-looking guidance could further be strengthened going forward.

He mentioned that there is an increasing perception in public discussions suggesting the Monetary Policy Committee makes decisions in secrecy, lacking transparent and data-driven rationale.

He praised the outside members of the Committee—Professors Joshua Abor and Ebo Turkson—for their enduring contributions to the group.

He stated that although inflation was declining, it still remained unacceptably high at more than 23 percent, and the advancement had been gradual, especially when measured on a monthly basis.

For example, he stated that the underlying factors driving food price inflation continued to be consistent.

The Governor stated that although the external environment is presently conducive, it is showing signs of growing volatility.

We’ve observed a robust trade surplus along with significant reserves accumulation due to gold exports and inflows from remittances,” he noted further. “However, an intensification of global tariff disputes, increasing geopolitical strains, and diminishing demand from China might alter this scenario rapidly.

He mentioned that these worldwide elements might lead to spill-over impacts on inflation, capital movements, and the steadiness of exchange rates.

Domestically, he mentioned that for the 2024 fiscal year-end results were expansionary, as the deficit surpassed projected goals.

Dr. Asiama stated that there were promising indications of consolidation at the beginning of 2025; however, doubts persisted about whether the present strategies would be sufficient to stabilize expectations and meet the forthcoming IMF program evaluations.

The Governor mentioned that financial circumstances were changing rapidly, noting an increase in liquidity within the system. Commercial banks had expressed reservations regarding the Cash Reserve Ratio framework. It was thus crucial to meticulously evaluate its broader economic impacts, particularly concerning inflation rates, foreign exchange needs, and expansion of credit.

While private sector credit showed recovery in nominal terms, real credit growth stayed moderate; banks continued to be cautious, and concerns persisted over high levels of Non-Performing Loans.

“Meanwhile, the microfinance and rural banking sectors are demonstrating initial indications of stabilization; however, ongoing recapitalization and regulatory reform will be essential to maintain trust,” he further stated.

He recognized that many of today’s issues arose from past mistakes in both monetary and fiscal policies, specifically the loss of effective fiscal strategies during times of economic strain, poor collaboration between monetary and fiscal measures, and procrastination in implementing crucial structural changes.

This led to increased inflation, hindered effectiveness of monetary policies, and a decline in trustworthiness.

He emphasized that the MPC needed to contemplate these matters without aiming to apportion blame, but rather with the objective of fortifying the institutions and preventing the recurrence of previous errors.

“There are also significant underlying problems we cannot afford to ignore, including insufficient investment in farming, ongoing discrepancies in currency values, and the necessity to expand our local financial sectors,” he stated.

These factors fall outside the purview of today’s urgent interest rate decision; however, they will influence the overall monetary policy environment in the longer term.

He mentioned that they were dealing with a combination of threats: persistent inflation, high liquidity, low real interest rates, an unstable fiscal rebound, and increasing external uncertainties.

“We also possess buffer stocks, robust reserves, positive sentiment, and the reliability of our policy framework to steer us forward,” he added.

GNA

US Fed Official Warns: Inevitable Tariffs Will Fuel Inflation

Ghana’s Central Bank Chief Unveils Plans to Demystify Monetary Policy Decisions