Yet dismissing or even downplaying inflation while it is still above the Fed’s target of 2% poses big risks for the White House and the Federal Reserve. For the Trump administration, it could find itself on the wrong side of a potent issue: Surveys show that many Americans still see high prices as a major burden on their finances.<\/p>\n
Federal Reserve Chairman Jerome Powell speaks at a news conference on September 17, 2025, in Washington DC. (Photo by Yasin Ozturk\/Anadolu via Getty Images) \u00b7 Anadolu via Getty Images <\/p>\n
The Fed may be taking an even bigger gamble: It has cut its key interest rate on the assumption that the Trump administration’s tariffs<\/a> will only cause a temporary bump up in inflation. If that turns out to be wrong \u2014 if inflation gets worse or remains elevated for longer than expected \u2014 the Fed’s inflation-fighting credibility could take a hit.<\/p>\n That credibility plays a crucial role<\/a> in the Fed’s ability to keep prices stable. If Americans are confident that the central bank can keep inflation in check, they won’t take steps \u2014 such as demanding sharply higher pay when prices rise \u2014 that can launch an inflationary spiral. Companies often increase prices further to offset higher labor costs.<\/p>\n But Karen Dynan, a senior fellow at the Peterson Institute for International Economics, said this week that with memories of pandemic-era inflation still fresh and tariffs pushing up the cost of imported goods, consumers and businesses could start to lose confidence that inflation will stay low.<\/p>\n \u201cIf that proves to be the case, in hindsight it will be that the Fed cuts \u2014 and I do expect several more \u2014 are going to be seen as a mistake,\u201d Dynan said.<\/p>\n So far, the Trump administration’s tariffs haven’t lifted inflation as much as as many economists expected earlier this year. And it remains far below its 9.1% peak three years ago. Still, consumer prices increased 2.9% in August<\/a> from a year earlier, up from 2.6% at the same time last year and above the Fed\u2019s 2% target.<\/p>\n The government is scheduled to release the September inflation report on Wednesday, but the data will probably be delayed by the government shutdown<\/a>.<\/p>\n Tariffs have pushed up the cost of many imported items, including furniture, appliances, and toys. Overall, the cost of long-lasting manufactured goods rose nearly 2% in August from a year earlier. It was a modest gain, but comes after nearly three decades when the cost of such items mostly fell<\/a>.<\/p>\n The cost of some everyday goods are still rising more quickly than before the pandemic: Grocery prices moved up 2.7% in August from a year ago, the largest gain, outside the pandemic, since 2015. Coffee prices have soared<\/a> nearly 21% in the past year, partly because Trump has slapped 50% import taxes on Brazil, a leading coffee exporter, and also because climate change-induced droughts have cut into coffee bean harvests.<\/p>\n Most Fed officials are still concerned that inflation is too high, according the minutes of its Sept. 16-17 meeting. Yet they still chose to cut their key interest rate, because they were more worried about the risk of worsening unemployment than about higher inflation.<\/p>\n But the concern for some economists is that the ongoing rollout of tariffs and the fact that many companies are still implementing price hikes in response could result in more than just a temporary boost to inflation.<\/p>\n \u201cIt is a big gamble after what we\u2019ve been going through … to count on it being transitory,\u201d said Jason Furman, an economist at Harvard University and a former top adviser to President Barack Obama. \u201cOnce upon a time, (3% inflation) would have been considered really high.\u201d<\/p>\n Just two weeks ago, Trump slapped new tariffs on a range of products<\/a>, including 100% on pharmaceuticals, 50% on kitchen cabinets and bathroom vanities, and 25% on heavy trucks. On Friday, he threatened \u201ca massive increase of tariffs\u201d<\/a> on imports from China in response to that country’s restrictions on rare earth exports.<\/p>\n Some companies are still raising prices to offset the tariff costs. Duties on steel and aluminum imports have pushed up the cost of the cans used by Campbell Soups, leading the company\u2019s CEO to say in September that it will implement \u201csurgical pricing initiatives.”<\/p>\n Chris Butler, CEO of National Tree Company, the nation\u2019s largest artificial Christmas tree seller, says his company will raise prices by about 10% this holiday season on its trees, wreaths, and garlands to offset tariff costs. About 45% of its trees are made in China, with the rest from Southeast Asia, Mexico, and other countries. The cost of labor and real estate is too high to make them in the United States, he said.<\/p>\n Butler also expects there will be a reduced supply of artificial trees and decorations this year, which could lift industry-wide prices further, because most production in China shut down when tariffs on that country hit 145% earlier this year. Production resumed after Trump reduced the duties to 30% but at a slower pace.<\/p>\n Butler has pushed his suppliers to absorb some of the cost of the tariffs, but they won\u2019t pay all of it.<\/p>\n \u201cAt the end of the day, we can\u2019t absorb the entirety of it and our factories can\u2019t absorb the entirety of it,\u201d he said. \u201cSo we\u2019ve had to pass along some of the increases to consumers.\u201d<\/p>\n Many Fed policymakers are aware of the risks. Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, who votes on interest rate decisions, said Monday that high inflation that results from a loss of confidence in the central bank is harder to fight than other price spikes, such as those that result from supply disruptions.<\/p>\n \u201cThe Fed must maintain its credibility on inflation,\u201d Schmid said. \u201cHistory has shown that while all inflations are universally disliked, not all inflations are equally costly to fight.\u201d<\/p>\n Yet some Fed officials say that other trends are offsetting the impact of tariffs. Fed governor Stephen Miran, whom Trump appointed just before the central bank\u2019s September meeting, said Tuesday that a steady slowdown in rental costs should reduce underlying inflation in the coming months. And the sharp drop in immigration as a result of the administration\u2019s clampdown will reduce demand, he said, cooling inflation pressures.<\/p>\n \u201cI\u2019m more sanguine about the inflation outlook than a lot of other people are,\u201d he said.<\/p>\n","protected":false},"excerpt":{"rendered":"WASHINGTON (AP) \u2014 Inflation has risen in three of the last four months and is slightly higher than…\n","protected":false},"author":2,"featured_media":73961,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,65,219,866,3714,58027,5548,19076,111,139,69],"class_list":{"0":"post-73960","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-donald-trump","10":"tag-economy","11":"tag-federal-reserve","12":"tag-getty-images","13":"tag-grocery-prices","14":"tag-jerome-powell","15":"tag-kamala-harris","16":"tag-new-zealand","17":"tag-newzealand","18":"tag-nz"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/73960","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=73960"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/73960\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/73961"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=73960"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=73960"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=73960"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}} (Getty Images) \u00b7 by Marc Guitard via Getty Images <\/p>\n
President Donald Trump speaks in the Oval Office of the White House, Friday, Oct. 10, 2025, in Washington. (AP Photo\/Alex Brandon) \u00b7 ASSOCIATED PRESS <\/p>\n