Americans could soon face higher inflation as businesses pass along tariff costs, Fed official says

Americans may see inflation rise in 2025 due to the impact of the Trump administration’s tariffs on businesses and consumers. Beth Hammack, president and CEO of the Federal Reserve Bank of Cleveland, warned in an interview with CBS News that businesses are starting to pass on the cost of tariffs to consumers through price increases.

Despite the implementation of President Trump’s tariffs, inflation has remained relatively low this year. This is partly because many businesses stockpiled goods and manufacturing parts before the tariffs were put in place. Some businesses also held off on raising prices as they awaited more clarity on tariff rates, and the administration instituted pauses on threatened levies, delaying cost increases for both businesses and consumers.

President Trump has been urging the Federal Reserve to cut interest rates, pointing to low inflation numbers and rate cuts by other major central banks. However, the Fed recently decided to maintain its benchmark rate at the same level it has been since December 2024. Fed Chairman Jerome Powell cited the risks of higher inflation due to the tariffs as a reason for the decision.

Hammack expressed concern that inflation could reach a 3% annual rate in 2025, exceeding the Fed’s target of 2%. She explained that businesses are starting to pass on tariff costs to consumers as their margins are being squeezed. This could lead to a one-time increase in costs as businesses adjust their prices to cover the import duties.

A recent poll from The Associated Press-NORC Center for Public Affairs Research found that many Americans are feeling stress over grocery prices, surpassing concerns about housing costs and healthcare. Hammack noted that the economy appears to be divided into a “two-speed economy,” with higher-income households doing well while low-income households face economic challenges.

As the labor market also faces challenges, with job growth slowing in July, the Fed is facing a difficult balancing act. The central bank’s mandate is to keep both inflation and unemployment low, using interest rate adjustments to achieve these goals. With inflation rising and the job market facing headwinds, the Fed must carefully consider its next steps.

The Federal Reserve is set to make its next decision on interest rates in September, with some analysts calling for a rate cut due to weak job growth. Hammack acknowledged the risk of waiting too long to cut rates, as it could result in more job losses. Balancing the need to address inflation while supporting job growth is a challenging task for policymakers.

In conclusion, the Federal Reserve faces a complex economic environment in 2025, with inflation on the rise and the job market showing signs of weakness. The central bank must carefully navigate these challenges to ensure a strong and stable economy for all Americans.