Daily Tariff Policy Changes Upset Fed Rate Setting

March’s much cooler-than-expected inflation report might have encouraged Federal Reserve officials just months ago, strengthening the case for gradual interest-rate cuts.

The tariff-driven price hikes and supply chain disruptions are projected to push inflation up to 4%.

But central bank policymakers are now holding off, waiting to see how President Donald Trump’s shifting tariff policies impact the U.S. and global economies, Megan Leonhardt, Evie Liu, and Janet H. Cho reported for Barron’s Daily.

Headline inflation cooled to a 2.4% annual rate in March—a significant slowdown from February’s 2.8% pace.

Core inflation, which excludes food and energy prices, declined to 2.8% year-over-year, the smallest annual gain since March 2021, according to the Bureau of Labor Statistics (BLS).

Trump recently implemented a 10% baseline tariff on dozens of countries and raised so-called reciprocal tariffs on Chinese imports to 125%. ING’s chief international economist, James Knightley, expects these tariff-driven price hikes and supply chain disruptions to push inflation up to 4%.

Gasoline prices fell 6.3% in March, while motor vehicle insurance dropped 0.8%. Housing inflation rose 4% year-over-year in March, while rent inflation increased 0.3% from February, and owners’ equivalent rent rose 0.4%.

The food Consumer Price Index rose 3% in March—faster than in both January and February—suggesting food inflation is reigniting.

Egg prices are up 60% compared to a year ago, while beef, bacon, poultry, fish, coffee, nonalcoholic beverages, and dairy prices all increased more sharply in March.

With data showing robust hiring and trade policy creating inflationary pressures, a rate cut at the Fed’s May meeting is looking increasingly unlikely. Traders now see an 82% chance that the Fed will hold rates steady.