WASHINGTON (AP) — Inflation has risen in three of the past four months and is slightly higher than a year ago, when then-Vice President Kamala Harris’ presidential campaign helped subside. But you wouldn’t know it from listening to President Donald Trump and some of the pro-inflationists at the Federal Reserve.
“Food prices are down, mortgage rates are down, and inflation has been defeated,” President Trump told the United Nations General Assembly late last month.
and, Featured speeches in AugustJust before the Fed lowers its key interest rate, for the first time this year“While inflation is still slightly elevated, it is well below its post-pandemic highs. Upside risks to inflation have diminished,” Federal Reserve Chairman Jerome Powell said.
But ignoring or even downplaying inflation, even though it is still above the Fed’s 2% target, poses a big risk for the White House and the Fed. For the Trump administration, it could end up on the wrong side of a major issue. Surveys show that many Americans still believe that high prices are a major burden on household budgets.
The Fed may be making even bigger bets. They lowered key interest rates on the assumption that the Trump administration’s tariffs would only cause a temporary rise in inflation. If that turns out to be wrong — if inflation worsens or stays high for longer than expected — the credibility of the Fed’s inflation policy could take a hit.
Its reliability plays an important role important role The Fed’s ability to keep prices stable. If Americans were confident that the central bank could control inflation, they would not take steps that could trigger an inflationary spiral, such as demanding large wage increases when prices rise. Companies often raise prices further to offset higher labor costs.
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 driving up the price of imported goods, consumers and businesses could start to lose confidence that inflation will stay low.
“If that turns out to be the case, in hindsight, the Fed’s rate cuts, and then several more rate cuts, will be seen as a mistake,” Dynan said.
So far, the Trump administration’s tariffs have not boosted inflation as much as many economists expected earlier this year. And it remains well below its peak of 9.1% three years ago. Still, consumer prices rose 2.9% in August The rate was 2.6% compared to the same month last year, up from 2.6% at the same time last year and exceeding the Fed’s 2% target.
The government is scheduled to release its September inflation report on Wednesday, but the release of the data will likely be delayed until the 25th. government shutdown.
Tariffs are raising the prices of many imported goods, including furniture, home appliances, and toys. Overall, the cost of long-life manufactured goods rose nearly 2% in August compared to the same month last year. It was a modest profit, but it came after nearly 30 years of soaring prices for such goods. almost fell.
Prices for some everyday items are still rising faster than before the pandemic, with food prices rising 2.7% year-on-year in August, the largest increase since 2015 excluding the pandemic. prices have soared This is partly due to President Trump’s imposition of a 50% import tax on Brazil, a major coffee exporter, and a decline in coffee bean harvests due to drought caused by climate change.
Most Fed officials remain concerned that inflation is too high, according to minutes from a Sept. 16-17 meeting. Still, they chose to lower key interest rates because they were more concerned about the risk of worsening unemployment than rising inflation.
But some economists are concerned that the fact that tariffs are still in place and that many companies are still raising prices in response could result in more than just a temporary boost to inflation.
“Given what we’ve been through, expecting it to be a one-off is a big gamble,” said Jason Furman, a Harvard economist and former top adviser to President Barack Obama. “In the past, (3% inflation) would have been considered very high.”
Just two weeks ago, President Trump slapped New tariffs on various productsThe breakdown is 100% for pharmaceuticals, 50% for cupboards and vanities, and 25% for large trucks. Friday, he threatened “Significant increase in tariffs” Restrict imports from China in response to China’s rare earth export restrictions.
Some companies are still raising prices to offset tariff costs. Import tariffs on steel and aluminum have caused the price of cans used by Campbell Soup to soar, prompting the company’s CEO to announce in September that the company would implement a “surgical pricing policy.”
Chris Butler, CEO of National Tree Company, the nation’s largest seller of artificial Christmas trees, said his company plans to raise prices on trees, wreaths and garlands by about 10% this holiday season to offset the cost of tariffs. About 45% of its trees are made in China, and the rest in Southeast Asia, Mexico, and other countries. They can’t be made in the U.S. because labor and real estate costs are too high, he said.
Butler also expects the supply of artificial trees and ornaments to decline this year, potentially pushing prices higher across the industry further after most production in China was halted when tariffs hit 145% earlier this year. After President Trump lowered tariffs to 30%, production resumed, but at a slower pace.
Butler has asked suppliers to cover some of the customs costs, but will not pay the full amount.
“At the end of the day, we can’t absorb it all, and our factories can’t absorb it all,” he said. “So we had to pass some of the price increases on to consumers.”
Many Fed policymakers recognize the risks. Kansas City Fed President Jeffrey Schmidt, who votes on interest rates, said Monday that high inflation caused by a loss of confidence in the central bank is harder to combat than other price increases caused by things like supply disruptions.
“The Fed must maintain credibility on inflation,” Schmidt said. “History shows that while all inflation is universally hated, not all inflation is equally costly to fight.”
But some Fed officials say other trends are offsetting the impact of the tariffs. Fed Director Stephen Milan, whom President Trump appointed just before the Fed’s September board meeting, said Tuesday that a steady slowdown in rental costs should reduce underlying inflation in coming months. A sharp drop in immigration as a result of the administration’s tightening will also reduce demand and ease inflationary pressures, he said.
“I’m more optimistic about the inflation outlook than many others,” he said.
