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That’s in contrast to the softer CPI numbers we saw recently, adding confusion about where inflation’s really headed. With spending expected to rise 0.7% and incomes up 0.4%, the Fed may not see enough weakness to justify cutting rates anytime soon.
Tariffs Could Keep Inflation Higher for Longer
The Trump administration’s tariff plans are adding new layers to the inflation picture. Boston Fed’s Susan Collins says a short-term spike is likely. But St. Louis Fed’s Alberto Musalem isn’t so sure it’ll fade quickly. His team estimates the tariffs could lift inflation by over a full percentage point.
Since today’s data is from February—before most of these tariffs were announced—it may understate what’s coming next. That’s a key risk for anyone betting on rate cuts.
Business Activity Slows Under Policy Fog
Fed officials say businesses are stalling, holding back on investment and hiring as they wait for policy clarity. Richmond Fed’s Thomas Barkin described the current environment as like driving in fog with “zero visibility.”
This slowdown adds to downside risks for growth, especially if consumer spending also weakens in the coming months.
Consumer Confidence Drops, Inflation Fears Climb
Consumer sentiment likely dropped sharply in March, and inflation expectations likely rose to their highest level in over a year. That could lead households to cut back on spending—which would weigh on growth and make the Fed’s job even harder.
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