THE Federal Reserve’s latest Monetary Policy Report to Congress, released on Friday (Jun 20), said US inflation is somewhat elevated and the labour market is in solid shape. However, it suggested that President Donald Trump’s tariffs have likely only begun to be felt, and repeated the central bank’s view that it can wait for more clarity before taking action.
“The effects on US consumer prices of the increase in import tariffs this year are highly uncertain, as trade policy continues to evolve, and it is still early to assess how consumers and firms will respond,” said the report, which comes ahead of next week’s testimony before Congress by Fed chair Jerome Powell.
“Although the effects of tariffs cannot be observed directly in the official consumer price statistics, the pattern of net price changes among goods categories this year suggests that tariffs may have contributed to the recent upturn in goods inflation.”
So far, though, the effect of tariffs has yet to show up in the official data for some goods, notably cars, though they have weighed on household and business sentiment.
The Monetary Policy Report, which comes twice yearly, generally summarises topics already well known to Fed watchers and market participants.
On Wednesday, Fed policymakers wrapped up their rate-setting meeting with a decision to leave the policy rate in the 4.25 to 4.5 per cent range, where it has been since December.
Central bankers want to see how the Trump administration’s tariffs and other policies affect inflation, the labour market, and the economy broadly before they adjust borrowing costs. Powell said he expects to see “meaningful” inflation in the coming months, and policymakers generally see the economy slowing and the unemployment rate ticking up to 4.5 per cent this year.
The report said that despite uncertainty the financial system has been “resilient”. REUTERS
