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Tariff Inflation Will Likely Be Transitory

Nevertheless, the Fed may feel compelled to raise interest rates as soon as the first signs of a tariff-led bump in inflation emerge.

By Catarina Saraiva | December 13, 2024 at 03:09 PM
The Port of Los Angeles. Credit: Eric Thayer/Bloomberg.

Donald Trump’s tariff barrage may trigger a response from the Federal Reserve that the new president won’t like.

Trump is promising across-the-board tariffs on imports when he’s back in the White House. In his first term, Fed staffers gamed out a similar scenario and concluded that inflation would accelerate—but not for long. And since the tariffs were ultimately seen as a drag on the economy, they prescribed lower interest rates as the best remedy.

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