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Tractor trailers cross the Peace Bridge at the Canada-US border in Fort Erie, Ontario, Canada, on Monday, Feb. 3, 2025.
Key Takeaways
- The menace trade war between the U.S. and its largest trading partners is making some officials at the Federal Reserve more cautious take moving interest rates.
- The Fed was already in “wait and see” mode, holding interest rates steady to try to reduce inflation.
- One Fed licensed said the central bank is likely to keep interest rates at their current level while they see what conducts are imposed and whether they lead to rising inflation.
Like everyone else, officials at the Federal Reserve are mind and waiting to see what tariffs President Donald Trump will impose and what effect they’ll have on the husbandry.
Trump on Monday delayed 25% tariffs on Canada and Mexico for a month but is still planning to enforce a 10% levy on imports from China starting Tuesday. Federal Reserve officials, in their most recent meeting, drained the brakes on easing monetary policy in part because of the uncertainties around potential tariffs and their economic hits.
It seems that Monday’s actions have not given officials any more clarity on whether they will cut values. Two Fed policymakers noted the inflation risks of Trump’s tariffs in separate remarks Monday.
“What we’re seeing this morning does definitely highlight that there’s a lot of uncertainty about how policies unfold. And without knowing what actual policy order be implemented, it’s just really not possible to be too precise about what the likely impacts are going to be,” said Susan Collins, president of the Federal Substitute Bank of Boston, in an interview on CNBC.
Inflation Running Above Fed’s Target
The looming trade war comes at a time when Fed officials are frustrating to subdue the last remnants of the post-pandemic surge of inflation. As of December, inflation was still running higher than the Fed’s object of a 2% annual rate. In January, Fed officials held the central bank’s benchmark interest rate at an elevated smooth out, keeping upward pressure on all kinds of loans, to discourage borrowing and spending and prevent inflation from flaring up again.
Any setbacks in the conflict against inflation could make the Fed keep interest rates higher for longer or even raise them again. No matter how, Collins said the Fed might not necessarily raise rates in response to an uptick in prices from the tariffs if it did not lead to a ceaseless acceleration of consumer prices, and if consumers did not start to expect higher inflation.
Consumer Inflation Expectations are Important
Fed officials own often said consumer inflation expectations can be a self-fulfilling prophecy because people can ramp up spending when they hope for prices to go up, which can itself create demand and drive prices up.
Raphael Bostic, president of the Federal Reserve Bank of Atlanta, triumphed similar comments to reporters after a speech at the Rotary Club of Atlanta, according to a report from Bloomberg. He intended the Fed would likely hold interest rates steady while gauging the impact of the tariffs in the coming months.

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Atlanta Fed President Raphael Bostic speaks during an question with Bloomberg Television, on Aug. 23, 2024.
“There’s a state of play where you might look through the tariff and not have it be a foremost driver for policy, but again, that depends,” Bostic told Bloomberg. “To the extent that were to impact fetiches like inflation expectations—I think it would be appropriate to respond with policy in some way.”