The Federal Reserve might be forced to cut interest rates if president Donald Trump’s tariffs push inflation higher. Officials at the Fed held rates steady in January, but the new meeting minutes released on Wednesday showed some serious concerns about Trump’s latest tariff threats on cars, semiconductors, and pharmaceuticals.
The Federal Open Market Committee (FOMC) agreed that trade policies could keep inflation above the central bank’s 2% target, delaying their plan to ease monetary policy.
Speaking to reporters on Tuesday, president Trump said he’s considering a 25% tariff on key imports, a move that could hit supply chains and drive up prices across industries.
According to the Fed’s minutes, officials warned that businesses would likely pass higher costs onto consumers, which could force the central bank to keep rates high for longer—or eventually cut them if economic conditions worsen.
Fed warns tariffs could stall inflation fight
“The effects of potential changes in trade and immigration policy, as well as strong consumer demand, were cited as risks to the inflation outlook,” the January minutes said.
Officials pointed out that businesses across many Federal Reserve districts reported concerns about tariffs driving input costs higher, leading to price hikes on consumer goods. The minutes said:
“In support of its goals, the Committee agreed to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. Members agreed that in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee would carefully assess incoming data, the evolving outlook, and the balance of risks.”
Trump’s trade policies complicate Fed’s decisions
Trump’s latest tariff plans would expand existing duties and introduce new ones on autos, pharmaceuticals, and semiconductors— all sectors that are very important to the US economy. The president has already imposed some tariffs on China, but his new proposal will take things further, likely disrupting supply chains and putting more pressure on prices.
Trump told the reporters on Tuesday that: “We’re looking at tariffs of 25% on cars, big tariffs on pharmaceuticals, semiconductors—we have to protect American jobs.” While he didn’t give a timeline, he made it clear that his administration is moving forward aggressively.
Despite concerns over Trump’s tariffs, Wall Street earnings reports have been strong, with many companies choosing to focus on upcoming business tailwinds rather than trade risks. Goldman Sachs’ chief economist Jan Hatzius, in a Monday research note, described the situation as “animal spirits over tariffs.”
Hatzius said that excluding energy companies, real revenues in Q4 2024 climbed 3.2% year over year, largely due to resilient consumer spending. Businesses are also benefiting from Trump’s deregulation push, which has boosted corporate confidence.
“Deregulation might not be a near-term tailwind, but broader optimism and capex expectations have improved sharply … reinforcing our above-consensus capex view for 2025,” Hatzius wrote.
Manufacturing is also seeing gains. The Institute for Supply Management’s (ISM) purchasing managers’ index for manufacturing reached its highest level in two years last month, signaling strength in the sector. Hatzius added that increased spending on new factories, artificial intelligence, and tax incentives will drive business investment growth by about 5% this year.
The Fed minutes said that: “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
Democrats in Congress are pushing Donald Trump’s pick for a top economic job to clearly promise he’ll protect the Federal Reserve’s independence, as they grow concerned about Trump trying to tighten control over the central bank.
Elizabeth Warren, the top Democrat on the Senate banking committee, sent a letter directly to the White House, asking Stephen Miran, Trump’s nominee for chair of the Council of Economic Advisers (CEA), if he would commit to keeping politics out of Fed decisions.
The letter, dated February 21 and obtained by the Financial Times, came just days before Miran’s confirmation hearing scheduled this Thursday in the Republican-led Senate.
In the first month of his second term, Trump has already moved aggressively to boost his power over agencies traditionally outside of White House control. Last week, he signed an executive order instructing independent financial regulators—including parts of the Fed—to consult the White House on their priorities. However, the Fed’s actual monetary policy decisions weren’t included in this order.
The CEA is a small but influential team of three people who advise the president on economic policy, and the person chairing it can significantly influence White House decisions.
Miran previously worked as a policy adviser at the Treasury Department during Trump’s first term, and he has publicly criticized Fed chair Jay Powell. He argues the Fed isn’t as independent as people think, and has repeatedly called for shrinking the central bank’s autonomy.
Last year, in a published paper, Miran wrote that complete Fed independence is “incompatible with a democratic system,” and said its current structure had led to major policy mistakes. He claimed the Fed has pursued a broad agenda that makes it seem more like a political organization than an independent economic body.
Miran also criticized Powell publicly for urging Congress in October 2020—just weeks before the presidential election—to pass a large stimulus package to help the economy recover from COVID-19. Miran wrote on X (formerly Twitter) in September that Powell’s call to “go big” on stimulus was wrong both economically and politically.
One of Miran’s suggestions for reforming the Fed included making it easier for the president to fire Fed board members at will.
In her letter, Warren asked Miran directly: “Do you believe the president can fire at-will a Fed board official?” She also wanted him to clarify if he supports proposals to remove the Fed’s responsibility to promote full employment, which is currently one-half of its core mandate.
The Fed right now is under the most intense political pressure it’s faced since the 1980s, especially with Trump frequently urging Powell to lower interest rates. Powell has publicly insisted that the Fed remains independent, committed to keeping politics out of monetary policy decisions.
Warren’s detailed letter—27 pages in total—asks Miran to clearly state his views on several critical economic issues, including Trump’s policies on taxes and trade, economic forecasts, fiscal policy, lowering prices, financial regulations, and even immigration’s economic impact.
The senator also raised questions about potential conflicts of interest, given Miran’s current role as a senior strategist at the hedge fund Hudson Bay Capital.
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