Recently, several officials from the U.S. Federal Reserve (the Fed) have pointed out that the trade and immigration policies of the new U.S. government contain uncertainties that could increase inflation risks, significantly affecting the Fed's monetary policy outlook. Fed Governor Adriana Kugler stated that although the risks of a weak U.S. labor market have slightly eased, the risk of rising inflation remains, and it is expected that the U.S. inflation rate will struggle to reach the long-term target of 2% over an extended period.
Kugler further emphasized that the effect of future U.S. government policies will depend on their specific implementation. Currently, it seems that tariff increases could push up the prices of goods, but the specific impact remains unclear, requiring more information on policy implementation for further assessment.
Meanwhile, Atlanta Fed President Raphael Bostic noted that there are mixed views among U.S. businesses regarding the economic outlook. Businesses are generally concerned about the negative impacts that might arise from tariff increases, immigration policies, and regulatory changes. He believes that tariffs could raise business costs, thereby driving up goods prices. Bostic also expects the Fed to cut interest rates twice within the year, but stresses that the timing and extent of the rate cuts remain highly uncertain.
Additionally, St. Louis Fed President Alberto Musalem stated that changes in government policies could heighten the risk of rising inflation, forcing the Fed to make tough choices between hiking rates to combat inflation and cutting rates to ease economic downturns.
Chicago Fed President Austan Goolsbee believes that the current U.S. inflation level is relatively reasonable, having notably declined from its peak in mid-2022. However, he noted that the impact of tariffs being developed by the U.S. government on prices would depend on the specific tariff range and rates.
The Fed's monetary policy meeting held from January 28 to 29 decided to maintain the federal funds rate target range at 4.25% to 4.5%, marking the first pause in rate hikes since September 2024. The market generally expects the Fed to continue maintaining the current interest rate levels in the first half of this year.
According to the latest data from the U.S. Department of Labor, the U.S. Consumer Price Index (CPI) rose by 0.5% month-on-month in January, an increase from December, indicating signs of inflation picking up. Additionally, the Producer Price Index (PPI) rose by 0.4% month-on-month in January, exceeding market expectations, further highlighting the growing inflationary pressures.
