Everyone is forecasting a meaningful increase in inflation in the coming months because someone has to pay for the tariffs, said U.S. Federal Reserve Chairperson Jerome Powell in a press conference, following the FOMC's meeting in June.
As a result of the high uncertainties regarding U.S. President Donald Trump's tariffs, the Federal Reserve has decided to remain dependent on data to guide its monetary policy actions.
"It takes some time for tariffs to work their way through the chain of distribution to the end consumer. A good example of that would be goods being sold at retailers today, may have been imported several months ago before tariffs were imposed. So we're beginning to see some effects and we do expect to see more of them overcoming months," he said on tariffs.
Following the March meeting, the FOMC learned in April that substantially higher tariffs were likely. However, the estimates have moved back down, although remains at elevated levels, as Trump plans trade deals with key U.S. trading partners.
When the tariffs are imposed, "someone has to pay for the tariffs," Powell added. Someone in the chain between the manufacturer, the exporter, the importer retailer, and the consumer have to pay for it. "Each one of those is going to be trying not to be the one to pay for the tariff. But together they will all pay for them. Together, or maybe, one party will pay it all."
As a result, inflation is likely to go up meaningfully, but then go down. However, the Fed Chairperson added that the pass through of tariffs to consumer price inflation will be very uncertain. "So that's why we need to see some actual data to make better decisions. We'd like to get some some more data. And again, in the meantime, we can do that because the economy remains in solid condition."
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The U.S.-based central bank last cut its interest rate in December 2024, when inflation was higher. However, as the Federal Reserve learned, following the rate cut, that tariffs were to be substantially higher than forecasts, the central bank decided to adopt its data-dependent stance.
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