Federal Reserve faces tough balancing act between fighting inflation and spurring economic growth

By CHRISTOPHER RUGABER Associated Press Economics Writer WASHINGTON AP The Federal Reserve could keep its key rate unchanged for several more months as it evaluates the impact of President Donald Trump s widespread tariffs on hiring and inflation several economists say even as the White House pushes for a rate cut The Fed is nearly certain to keep its rate unchanged when it concludes its latest guidelines meeting Wednesday Chair Jerome Powell and other Fed bureaucrats have signaled that they want to see how the duties including on all imports from China impact consumer prices and the economic system Related Articles WeightWatchers files for bankruptcy protection to eliminate debt burden Mattel considers price hikes in response to tariffs after Trump says kids don t need a lot of dolls Jury selection in the Sean Diddy Combs sex trafficking trial expected to be completed Wednesday A man with an open asylum event was deported His lawyers want to know if there are others Smokey Robinson accused by former housekeepers of sexual assault and rape The central bank s caution could lead to more conflict between the Fed and the Trump administration On Sunday Trump again urged the Fed to cut rates in a television interview and commented Powell just doesn t like me because I think he s a total stiff With inflation not far from the Fed s target for now Trump and Treasury Secretary Scott Bessent argue that the Fed could reduce its rate The Fed pushed it higher in and to fight inflation If the Fed were to cut it could lower other borrowing costs such as for mortgages auto loans and credit cards though that is not guaranteed Trump also stated Sunday he wouldn t fire Powell because the chair s term ends next May and he will be able to appoint a new chair then Yet if the economic system stumbles in the coming months Trump could renew his threats to remove Powell A big issue facing the Fed is how tariffs will impact inflation Nearly all economists and Fed officers expect the import taxes will lift prices but it s not clear by how much or for how long Tariffs typically cause a one-time increase in prices but not necessarily ongoing inflation Yet if Trump announces further tariffs as he has threatened to do on pharmaceuticals semiconductors and copper or if Americans worry that inflation will get worse that could send prices higher in a more persistent way Kathy Bostjancic chief economist at Nationwide stated this could keep the Fed on the sidelines until September It s hard for them to cut sooner because they ve got to weigh what s the inflation impact Bostjancic revealed Is this going to be somewhat persistent and add to inflation expectations Economists and the Fed are closely watching inflation expectations which are essentially a measure of how much consumers are concerned that inflation will worsen Higher inflation expectations can be self-fulfilling because it Americans think prices will rise they can take strategies that push up costs such as asking for higher wages For now the U S financial sector is mostly in solid shape and inflation has cooled considerably from its peak in Consumers are spending at a healthy pace though several of that may reflect buying things like cars ahead of tariffs Businesses are still adding workers at a steady pace and unemployment is low Still there are signs inflation will worsen in the coming months Surveys of both manufacturing and services firms show that they are seeing higher prices from their suppliers And a survey by the Federal Reserve s Dallas branch detected that nearly of manufacturing firms expect to pass on the impact of tariff increases to their customers The bottom line is that inflation will be rising significantly over the next six months Torsten Slok chief economist at the Apollo Group noted in an email Yet the tariffs could also weigh heavily on the financial market particularly because of the uncertainty they have created Huge tariffs on about other nations broadcasted April were then postponed until July but could be reimposed Business surveys show that firms are postponing venture decisions until they have greater clarity Ryan Sweet chief U S economist at Oxford Economics revealed the uncertainty surrounding transaction framework gives him night terrors The economics of uncertainty are absolutely suffocating Sweet commented Businesses that don t know the rules of the road their knee-jerk reaction is to sit on their hands And that s what they re doing But if the uncertainty delays hiring slows the economic activity and pushes up the unemployment rate the Fed could briskly shift toward interest rate cuts A sharp economic slowdown could eventually cool inflation by itself economists say If you felt like the financial system was really slowing down then I think that would ostensibly take precedence over inflation because usually the way the committee thinks is that will also drag inflation somewhat with it stated Jim Bullard former president of the Federal Reserve s St Louis branch and at this moment dean of Purdue University s business school In March the Fed signaled that it could cut rates twice this year But since then the Trump administration imposed duties that Powell noted last month were larger and broader than the Fed expected The duties Powell acknowledged could both slow increase and lift prices which puts the Fed in a tough spot It would usually cut rates to boost expansion and hiring while it would raise them to cool spending and inflation Powell signaled that if the two goals came into conflict Fed leaders would put more weight on inflation concerns Without price stability we cannot achieve the long periods of strong labor realm conditions that benefit all Americans Powell revealed