Before the major resolution, the "New Federal Reserve News Agency" hinted: Tariffs are a key uncertainty for future Federal Reserve actions

On Wednesday, January 29, Eastern Time, the Federal Reserve is set to announce the decision from its first monetary policy meeting of the year. The day before this significant decision, Nick Timiraos, a senior reporter known as the "new Federal Reserve correspondent," hinted that the Fed will temporarily pause its actions this time, and that tariffs will be a key uncertain factor if interest rate cuts are to occur in the future.

Timiraos's article on Tuesday was directly titled "Why Tariffs Are a Key Uncertain Factor Facing the Federal Reserve." At the beginning of the article, it stated that as Trump considers bolder uses of tariffs, the Federal Reserve faces a critical question: to what extent will rising prices exacerbate public expectations of increasing inflation?

The article then noted that there is widespread expectation that the Federal Open Market Committee (FOMC) meeting ending on Wednesday will decide to keep the current policy interest rate unchanged, pausing after three consecutive meetings of rate cuts. The article pointed out,

“When or whether the Federal Reserve resumes interest rate cuts largely depends on the inflation outlook, and theinflation outlookmaybe affectedthis year by whether Trump will follow through on his threat to raisetariffs**. Tariffs remain a key uncertain factor influencing the Federal Reserve's outlook, as there are concerns that tariffs will affect businesses' and consumers' expectations of future inflation.**”

Timiraos pointed out that the Federal Reserve views inflation expectations as central to the inflation generation process, meaning that how the Trump administration implements tariff increases could influence how Fed officials set interest rates. Once inflation expectations rise, there may be sustained higher price growth in the future.

Timiraos believes that the inflationary situation triggered by this trade war is much more complex for the Federal Reserve compared to Trump's first presidential term. This time, the Federal Reserve's response to tariff increases may differ from that during Trump's first term, as the U.S. has just experienced several years of high inflation. He cited the views of former Federal Reserve economist Steven Kamin, who was responsible for the Fed's international finance department during Trump's first term, stating that price setters and payers are now more sensitive to price pressures than they were in 2018.

Kamin expects that the Federal Reserve will be "more inclined to resist tariff increases" this time compared to Trump's first term, and if tariffs are imposed, the Fed will keep interest rates at a higher level than they would be without tariffs. In other words, if tariffs are imposed, the expectations for Fed rate cuts will be dampened. He also mentioned that since the Federal Reserve almost never adjusts interest rates based on policy outcomes that have not yet occurred, it is unlikely to react before tariffs are actually raised.

Earlier on Tuesday, Wall Street Journal mentioned that after the U.S. Senate voted to confirm Scott Bessent as Treasury Secretary on Monday evening, reports indicated that Bessent is pushing for a tariff plan to raise the "general tariff" starting from a base rate of 2.5%, increasing by 2.5% each month, allowing businesses time to adjust and giving countries the opportunity to negotiate with the Trump administration, with a maximum rate of up to 20% Since Trump took office, China has repeatedly expressed its position on the possibility of the U.S. imposing additional tariffs. According to Xinhua News Agency, on the first day of Trump's presidency, he did not mention an immediate increase in tariffs, but the next day stated that a 10% tariff on China might begin on February 1. In response, He Yadong, spokesperson for the Ministry of Commerce of China, stated on January 23 last Thursday that China's position on tariffs has been consistent, and that tariff measures are detrimental to both China and the U.S., as well as to the entire world. He further expressed that China is willing to promote the development of China-U.S. economic and trade relations towards a stable, healthy, and sustainable direction based on the principles of mutual respect, peaceful coexistence, and win-win cooperation.

According to CCTV, in response to Trump's statement that he "would rather not impose tariffs on China" but also claimed that tariffs are a "very powerful" tool against China, Chinese Foreign Ministry spokesperson Mao Ning reiterated China's position last Friday, stating that China-U.S. economic and trade cooperation is mutually beneficial. If there are differences and frictions between the two sides, they should be resolved through dialogue and consultation. There are no winners in a trade war or tariff war, which does not serve the interests of either party and is also detrimental to the world.

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