Private sector companies in the U.S. contemplate transferring Trump's tariff charges onto consumers, according to the Federal Reserve's minutes
U.S. businesses have expressed concerns to the Federal Reserve that consumers will bear the brunt of President Donald Trump's tariffs, according to the minutes of the bank's recent interest rate decision.
The Fed's meeting in early May took place after Trump announced a 90-day suspension on the most severe tariffs, and before the White House revealed trade deals with China and Britain, easing some market jitters.
In the meeting, central bank policymakers voted to maintain the benchmark lending rate between 4.25-4.5%, as they continue to combat inflation, which remains above the Fed's long-term target of 2%.
The minutes, released on Tuesday, show that several participants indicated that their business contacts or surveys suggested that firms are planning to either partially or fully pass on tariff-related costs to consumers.
Participants also warned that the Fed might face challenging tradeoffs if inflation proves to be persistent while economic growth and employment prospects weaken.
As part of its dual mandate, the Fed is tasked with acting independently to control both inflation and unemployment. Many economists view Trump's tariffs as inflationary and detrimental to growth.
Trump and his allies argue that tariffs are a crucial aspect of a broader economic policy mix, including tax cuts and deregulation, which should stimulate economic expansion.
The high level of uncertainty surrounding tariffs has led Fed officials to decide that it is prudent to keep interest rates unchanged. They believe that given the solid economic growth and labor market, the Fed is well-positioned to wait for greater clarity on the inflation and economic activity outlooks.
While not trivial, the impact of U.S. tariffs on consumers is complex and far-reaching. Firms may pass on tariff costs through higher prices, leading to increased inflation, reduced consumer purchasing power, and potential negative effects on economic growth. However, the exact magnitude of these effects remains uncertain.
The Fed's concern about tariff-related costs being passed on to consumers suggests a potential intersection of finance and business, as companies consider increasing prices to offset the effects of tariffs. The high-stakes trade negotiations, including those with China and Britain, are also a matter of general-news importance, as they can impact politics and the overall economy.
