Trump’s Tariffs Spike Inflation, Challenge Fed’s Next Move
August inflation rises as tariffs drive up goods prices.
U.S. inflation likely climbed to 2.9% in August 2025 from a year earlier, up from 2.7% in July, driven by President Donald Trump’s sweeping import tariffs that have increased the cost of goods, according to a FactSet survey of economists. This uptick, reported on Thursday, places the Federal Reserve in a precarious position as it prepares for its upcoming meeting next week, balancing economic growth with persistent inflationary pressures.
Core inflation, excluding volatile food and energy prices, is projected to hold steady at 3.1% annually, both figures surpassing the Fed’s 2% target. On a monthly basis, consumer prices and core prices are each expected to rise by 0.3% from July to August, with notable increases in grocery and gasoline costs. The tariff-driven price hikes, particularly on imported goods, have reignited concerns about sustained inflation, complicating the Fed’s monetary policy decisions.
President Trump has aggressively pushed for lower interest rates to stimulate borrowing and economic activity, but rising inflation could deter the Fed from rapid rate cuts. Federal Reserve Chair Jerome Powell, in remarks last month, suggested that tariffs might cause a one-time price surge rather than persistent inflation, potentially allowing for rate reductions. Wall Street anticipates three rate cuts in 2025, based on CME Fedwatch futures pricing, with the first expected next week following signals from Powell that the Fed is prioritizing job market concerns.
Also Read: Supreme Court to Decide Legality of Trump’s Sweeping Tariffs
Recent economic data adds complexity to the Fed’s calculus. Government reports indicate a sharp slowdown in hiring, with August’s unemployment rate rising to 4.3%, though still relatively low. Weaker job growth and revised lower hiring figures for last year suggest businesses are cautious about future demand, potentially warranting rate cuts to spur spending. However, the uptick in inflation may prompt the Fed to maintain or even tighten rates to curb price increases, creating a delicate balancing act.
The inflation report coincides with political tensions, as Trump recently attempted to dismiss Fed Governor Lisa Cook to exert greater influence over the central bank. A court ruling on Tuesday deemed the firing illegal, allowing Cook to remain in her role pending further legal proceedings. This controversy underscores the broader challenge of maintaining the Fed’s independence amid external pressures.
As the Fed navigates these economic and political headwinds, the August inflation data highlights the tangible impact of Trump’s tariffs on consumer prices, setting the stage for critical policy decisions that could shape the U.S. economy’s trajectory in the coming months.
Also Read: Trump’s Tariffs Ruled Illegal, Headed to U.S. Supreme Court
