A senior Federal Reserve official has put the chances that Donald Trump’s trade war leads to a sustained burst of inflation at “50-50”, as he warned US rate-setters would face uncertainty “right through the summer”.
St Louis Fed president Alberto Musalem told the Financial Times that while Trump’s levies could boost inflation for “a quarter or two”, there was “an equally likely scenario where the impact of tariffs on prices could last longer”.
The Trump administration has already brought US tariffs on the country’s trading partners to the highest level in almost 90 years, threatening to fuel higher inflation and slow economic growth. The competing forces have prompted policymakers to adopt a wait-and-see approach after cutting interest rates by 1 percentage point during the second half of last year.