The Federal Reserve seems worried about potential Trump tariffs

The Federal Reserve is getting more worried about inflation. And measures that might be taken by the incoming administration are exacerbating some of its concerns.

The central bank hiked its 2025 core PCE inflation forecast to 2.5% from 2.2% in December. The lion’s share of monetary policymakers thinks the risks to that higher estimate is to the upside. Just three Fed officials saw the risks to their core PCE projection as weighted to the upside in September; that number surged to 15.

“The slower pace of cuts reflects both higher inflation readings this year and expectation that inflation will be higher,” Fed Chair Jay Powell said during the press conference following the central bank’s rate cut.

He added that some members of the Fed incorporated potential policies that might be pursued by the Trump administration in formulating their forecasts for next year, while cautioning that it’s too soon to draw any firm conclusions on how tariffs might be implemented and impact inflation.

The bigger factor driving higher inflation projections, he said, is that recently inflation has come in above what the central bank anticipated.

“There is plenty of speculation of what the Trump administration will do, but they have yet to actually walk through the door. The Fed ought to focus on the here and now,” wrote Neil Dutta, head of US economics at Renaissance Macro Research. “And the here and now shows me: (1) housing in the basement, (2) labor cooling and (3) capex soft.”