「Fed's Echo Chamber」: Tariffs have become a key issue that the Fed must pay attention to when adjusting interest rates

BlockBeats News, March 20th, Nick Timiraos, a journalist from The Wall Street Journal known as the "Fed Whisperer," stated that the Fed's economic projections show a significant change in the economic outlook in just three months, although its interest rate projections have not yet reflected this, and the threshold for rate cuts has been raised.

Officials not only raised their core PCE inflation forecast for the second consecutive time (from 2.2% at the end of 2025 in September to 2.5% in December, and now to 2.8% in March), but some officials also slightly raised their forecasts for 2026 and even 2027. In addition, out of the 19 officials, 18 believe that the inflation risk is biased to the upside. A weakening labor market may be needed to prompt a rate cut.

Powell hinted that the changes in the inflation forecast are almost entirely attributable to adjustments in trade policy. ("We are now facing inflation pressure from external factors.") He has spoken with two former Fed officials who served during the trade tensions in 2019 and the inflationary period during the 2021 pandemic. They believe that price resets due to tariffs will make it difficult for them to ignore the inflation issue.

"Basically, what is being said here is that we have a potential inflation problem. We will focus on this, and when we have more evidence on economic growth, we are willing to react at that time - not before. No one wants to act this way. But in this environment, this may be the approach they have to take."