The American Federal Reserve finds itself divided over the potential inflationary consequences of the tariff increases promised by Donald Trump. While some officials downplay the risks, others fear a resurgence of inflation in an already tense economic context.
A debate that agitates the Fed
It was from the OECD headquarters in Paris that Christopher Waller, Governor of the Fed, spoke this Wednesday, January 8, 2025 on the thorny issue of customs duties. In response to growing market concerns, he tried to calm things down by declaring that these tariff increases would not have a “significant and lasting effect” on inflation in the United States.
This position contrasts with that of Jerome Powell, President of the Fed, who, in mid-December, expressed his concerns about the uncertainties surrounding these protectionist measures by Trump.
“ We don't know what will be taxed, from which country and for how long. We also do not know if there will be retaliatory measures or how these taxes will be reflected in consumer prices. “, he then detailed.
With inflation currently reaching 2.4% over one year, the planned customs duties – which could go up to 100% on certain Chinese products – could indeed have significant repercussions.
This divergence of opinions within the Fed reflects the difficulty of assessing the real impact of such measures on the American economy. Analysts struggle to accurately measure the cascading effects on supply chains and consumer prices, further fueling uncertainty.
Financial markets in search of visibility
Uncertainty surrounding future US trade policy is already weighing on stock markets. Investors are particularly concerned about the proposed national economic emergency declaration, revealed by CNN, which would give Donald Trump wide latitude to impose customs duties.
This outlook directly affects the Fed's interest rate strategy. After three consecutive cuts, the institution now plans only two reductions of 25 basis points for 2025, keeping rates in a range of 4.25% to 4.50%.
Wall Street analysts remain cautious, anticipating a pause at the next meeting at the end of January. This wait-and-see approach reflects concerns about the potential impact of protectionist measures on price stability.
The division within the Fed over the inflationary impact of customs duties illustrates the complexity of the challenge facing the monetary institution. In a context of political transition and economic uncertainty, the Fed will have to carefully navigate between maintaining price stability and supporting growth.
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