Recent minutes from the Federal Reserve's January policy meeting suggest that President Donald Trump's immigration and trade policies could potentially lead to an increase in inflation. The officials highlighted that while America's labor market was stable, other factors such as changes in trade and immigration policies, as well as strong consumer demand, could impede the disinflation process.
Economists believe that the substantial tariffs proposed by Trump during his campaign could fuel inflation if implemented. Although the President postponed imposing 25% tariffs on Mexico and Canada until March 1, tariffs on China and steel/aluminum imports have already been put in place.
The administration is contemplating reciprocal tariffs by early April, which could result in higher input costs being passed on to consumers by businesses. The Federal Reserve has been analyzing the potential impact of various tariff scenarios on the economy.
Following the tariff actions in 2018, Fed officials considered raising interest rates in a simulation where inflation was expected to rise and remain high in the long term, especially if other countries retaliated with tariffs. While some indicators of expected inflation have shown an uptick, longer-term measures have remained stable according to the minutes.
