Trump has imposed steep levies on China, and lower “baseline” levies of 10 percent on goods from most other countries, along with 25 percent duties on specific items like steel, automobiles and aluminum.
Most economists expect the tariffs introduced since January to push up prices and cool economic growth -- at least in the short run -- potentially keeping the Fed on hold for longer.
“That would undermine all the work that was done over the last three years of getting inflation down,“ she told AFP.
The Fed has held its key interest rate at between 4.25 percent and 4.50 percent since December, as it continues its plan to bring inflation to the bank's long-term target of two percent, with another eye firmly fixed on keeping unemployment under control.
At the same time, various “softer” data points such as consumer confidence surveys have pointed to a sharp decline in optimism about the health of the US economy -- and growing concerns about inflation.
“I think the committee remains in good condition here, and most likely they’ll remain on hold at this meeting,“ said Jim Bullard, the long-serving former president of the St. Louis Fed.
Financial markets overwhelmingly expect the Fed to announce another rate cut pause on Wednesday, according to data from CME Group.
US hiring data for April published last week came in better than expected, lowering anxiety about the health of the labor market -- and reducing pressure on the Fed's rate-setting committee to reach for rate cuts.
“Cutting in late July allows the committee to see more data on the evolution of the labor market, and should benefit from resolving uncertainty about tariffs and fiscal policy,“ economists at Barclays wrote in a note to clients published Friday.
The rise in longer-run inflation expectations in the survey data points to growing concerns that tariff-related price pressures could become embedded in the US economy, even as the market-based measures have remained close to the two percent target.
But Bullard from Purdue took a different view, stressing the stability of the market-based measures.
“This is a moment where you might want to look through the survey-based measures that are talking about very extreme levels of inflation that don’t seem likely to develop near-term,“ he added.
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