Federal Reserve observers point out that the tariff increases imposed by the Trump administration are pushing the central bank towards a policy crossroads. Economists warn that the large-scale tariff measures set to take effect may push the U.S. economy to the brink of recession by suppressing business investment and consumer demand, which objectively requires the central bank to counteract economic downward pressure through interest rate cuts. However, the increased import costs due to tariffs may translate into input-driven inflationary pressures, forcing the Federal Reserve to maintain current interest rate levels to stabilize price expectations.
"This is the most difficult dilemma in forty years," noted former Federal Reserve Governor Laurence Meyer. According to the dual mandate given by Congress, the central bank must ensure both price stability and full employment, but tariff policy is creating policy backlash: interest rate cuts to stimulate the economy may exacerbate inflation, while interest rate hikes to control inflation may deepen recession risks. Historical data shows that since the 1980s, no presidential policy has so profoundly torn apart the Federal Reserve's policy objectives.
Market analysts have noted that this policy contradiction has been reflected in the Federal Reserve's recent meeting minutes, where officials' assessments of the long-term impact of tariffs have significantly diverged. Investors are closely watching the latest interest rate decision to be announced this month, looking for clues on how the central bank seeks to balance "stabilizing growth" and "preventing inflation."
