Eyeing Inflation, Federal Reserve Officials Support ‘Cautious Approach’

Monetary policymakers will be assessing the ‘net effect’ of the administration’s policy changes, including tariffs.

Federal Reserve Chairman Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs on Capitol Hill on Feb. 11, 2025. Madalina Vasiliu/The Epoch Times

Federal Reserve officials fear that elevated inflation could be more persistent than expected, a summary of its March policy meeting reveals.

“With regard to the outlook for inflation, participants judged that inflation was likely to be boosted this year by the effects of higher tariffs, although significant uncertainty surrounded the magnitude and persistence of such effects,” the minutes stated.

Participants at the joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System on March 18–19 alluded to higher core goods inflation that could reflect “the anticipation of higher tariffs.”

Ultimately, nearly all meeting participants viewed upside risks to inflation and downside risks to employment.

The headline annual inflation rate is forecast to slow to 2 percent by 2027.

The document stated that as the U.S. central bank monitors the “net effect” of government policy changes, officials acknowledged that a more “cautious approach” to monetary policy would make sense.

Fed staff projected that real gross domestic product growth was weaker than estimates at the January meeting, noting that “incoming data for aggregate spending were below expectations and the support from financial conditions had lessened.”

The meeting summary comes shortly after President Donald Trump announced a 90-day pause on reciprocal tariffs and a higher 125 percent levy on China.

“The Minutes were heavily focused on effects of higher tariffs, referenced eighteen times as policy makers warned of uncertainty around the magnitude and persistence of such effects,” Jeffrey Roach, chief economist for LPL Financial, wrote in an email to The Epoch Times.

“Fed officials are concerned about the downbeat sentiment of both consumers and businesses, which could be a harbinger of much slower economic growth, irrespective of future trade policy.”

Fed Talks

In recent weeks, an increasing number of monetary policymakers have expressed concern about the president’s tariff plans.

Officials had been coy at the beginning of the new administration, stating that they would seek greater clarity before making policy decisions. However, many warn about upside risks to inflation and economic growth stemming from higher levies.

“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent,” Fed Chair Jerome Powell said in a speech on April 4 at the Society for Advancing Business Editing and Writing Annual Conference.

Powell said that although tariffs could result in a one-time price adjustment, the central bank’s job is to ensure it “does not become an ongoing inflation problem.”

Minneapolis Fed President Neel Kashkari said that he and his colleagues need to leave monetary policy alone and refrain from cutting interest rates.

“In my view, the hurdle to change the federal funds rate one way or the other has increased due to the tariffs,” Kashkari wrote in an essay published on the regional central bank’s website.

“Given the paramount importance of keeping long-run inflation expectations anchored and the likely boost to near-term inflation from tariffs, the bar for cutting rates even in the face of a weakening economy and potentially increased unemployment is higher.”

In a speech at the University of Pittsburgh, Lisa Cook, a governor on the Federal Reserve Board, stated that the recent developments would support maintaining a restrictive policy stance to prevent revived cost pressures and the risk of unanchored inflation expectations.

“But these price increases also lower disposable personal income, which could lead to lower consumer spending. And the uncertainty related to tariffs, by stalling hiring and investment, could generate a negative growth impulse to the economy and a weaker labor market,” Cook said.

The Federal Reserve building in Washington on March 14, 2022. Stefani Reynolds/AFP via Getty Images

Ultimately, uncertainty and risks to the dual mandate should force the Fed to keep the policy rate unchanged.

Long-run inflation expectations have spiked this year. According to the University of Michigan’s March Consumer Sentiment Index, the five-year inflation outlook climbed to 4.1 percent, the highest since February 1993.

However, the New York Fed’s latest Survey of Consumer Expectations suggested that median inflation on three- and five-year horizons was unchanged, at 3 percent.

The next major inflation report will be the March Consumer Price Index report. FactSet’s consensus estimate indicates that the headline annual inflation rate will ease to 2.6 percent from 2.8 percent in February.

Core inflation, which omits volatile energy and food prices, is expected to slow to 3 percent from 3.1 percent.

The rate-setting Federal Open Market Committee will hold its next two-day policy meeting next month, and the odds of a quarter-point reduction to the benchmark federal funds rate have steadily increased. However, according to the CME FedWatch Tool, most investors are betting on a 25-basis-point cut in June.

Although the Fed held a closed-door meeting this week, LPL Financial’s Lawrence Gillum says there have been zero signals that the Fed will intervene in the market turmoil.

“There’s been no indication the Fed is set to intervene, but one of its key mandates is financial stability, and with bond markets essentially in free fall, we’re sure the recent price action has caught the Fed’s attention,” Gillum, the firm’s chief fixed income strategist, said in an email to The Epoch Times.

Trump has returned to requesting that the Fed cut interest rates now that inflation pressures have diminished and the U.S. economy begins its tariff-driven transition.

“This would be a perfect time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” the president said in an April 4 Truth Social post.