As Trump weaponises tariff, Fed sees a bigger worry: Not jobs, but rising prices in America

As tariffs unleashed by US President Donald Trump continue to grip the global economy, most officials working at the US Federal Reserve highlighted that the risk of inflation outweighs concerns over the deplorable state of the American labour market. This was reflected by the minutes of the meeting the central bank had last month, Bloomberg reported.

“Officials acknowledged worries over higher inflation and weaker employment, but a majority of participants judged the upside risk to inflation as the greater of these two risks,” the minutes of the Federal Open Market Committee’s July 29-30 meeting obtained by Bloomberg read.

Last month, the US Federal Reserve left interest rates unchanged in a range of 4.25 per cent to 4.5 per cent, citing elevated uncertainty in their outlook as economic activity moderated during the first half of the year. At that time, they maintained that the labour markets are “solid” but noted that the inflation remained “somewhat elevated”.

The tariff impact

While speaking on the matter at the press conference following the meeting, Chair Jerome Powell said the inflationary impact from tariffs could well be temporary. However, he maintained that the central bank still needs to guard the American economy against more persistent effects.

According to the minutes obtained by Bloomberg, committee members debated whether tariffs would generate a one-time price impact or a more lasting inflation shock.

“Several participants emphasised that inflation had exceeded 2% for an extended period and that this experience increased the risk of longer-term inflation expectations becoming unanchored in the event of drawn-out effects of higher tariffs on inflation,” the minutes said.

Many officials also noted that it could take some time for the full effects of tariffs to be felt in consumer goods and service prices. It is pertinent to note that the minutes of the meeting came to light just two days before Powell will deliver a closely-watched speech in Jackson Hole, Wyoming, a stage he has previously used to steer investor expectations on interest rates.

This year witnessed the biggest spike in wholesale inflation in three years. The figures are seen as the latest sign that companies have begun to raise prices to offset rising input costs. Some federal officials have voiced concerns that the levies will influence prices well into next year.

With inputs from agencies.