Trump’s Tariffs Create Headaches for the Fed, BofA: Inflation Has Been Sticky, No Rate Cuts in 2025

TradingKey – The tariff war launched by U.S. President Donald Trump is undermining the Federal Reserve’s efforts to combat high inflation. The uncertainty stemming from these tariff policies has become a major concern for several Fed officials. Meanwhile,  the CEO of Bank of America predicted that the Fed will not cut interest rates in 2025.

The Trump administration has currently imposed additional tariffs on steel and aluminum imports into the U.S., with plans to implement reciprocal tariffs and auto industry tariffs effective on April 2.

Fed Chair Jerome Powell emphasized after the March policy meeting that the recent rise in inflation was only "temporary." However, not all Fed officials share this view. 

This week, Chicago Fed President Austan Goolsbee, St. Louis Fed President Alberto Musalem, and Boston Fed President Susan Collins all warned that tariffs could drive inflation higher.

Goolsbee stated that if market-based long-term inflation expectations continue to rise — as seen in surveys over the past two months — he would view it as a warning sign and a cause for concern. Collins added that the Trump administration’s tariffs are likely to push inflation higher in the short term, calling it  "seemingly unavoidable.".

While economists have issued preliminary forecasts on the inflationary impact of tariffs, "uncertainty" remains a persistent concern among Fed officials. In the March Beige Book, the word "uncertainty" was mentioned 45 times, setting a new record for its usage

Bank of America CEO Brian Moynihan stated that the new auto tariffs will likely lead to higher car prices and slower auto sales. On a broader level, he projected that these effects could increase inflation by 0.25 percentage points.

Moynihan said that Bank of America does not expect the Fed to cut interest rates in 2025, citing the persistent challenge of taming inflation.

In contrast to some economic reports that suggest signs of weakening U.S. consumer activity, Moynihan stated that Bank of America’s credit card data does not reflect this trend. He noted that food expenditures have increased, and spending on dining and entertainment continues to show positive momentum.