The Fed Was Misled by Its Tarifflation Convictions
The Federal Reserve spent 2025 worried about the wrong problem.
All year, officials treated President Trump’s tariffs as an inflation threat, a supply shock that risked pushing prices higher and complicating the central bank’s effort to bring inflation back to target. When the administration announced broad duties on foreign goods, the Fed’s instinct was caution: don’t cut rates too quickly, watch for tariff-related price pressures, keep policy tight enough to guard against a potential inflation flare-up.
“Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation,” Fed Chairman Jerome Powell said at his press conference in late October. “A reasonable base case is that the effects on inflation will
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