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

On March 20th, Nick Timiraos, a journalist from "The Wall Street Journal" renowned as the "Fed Whisperer", declared that the Fed's economic projections have witnessed a substantial alteration in the economic outlook within just three months. Despite this, its interest rate projections have not yet mirrored this change, and the threshold for rate cuts has been elevated. The officials not only raised their core PCE inflation forecast for the second consecutive time. It was increased from 2.2% at the end of 2025 in September to 2.5% in December, and now further to 2.8% in March. Moreover, some officials also marginally raised their forecasts for 2026 and even 2027. Additionally, among the 19 officials, 18 hold the view that the inflation risk is inclined to the upside. A weakening labor market might be necessary to prompt a rate cut. Powell hinted that the modifications in the inflation forecast are mainly attributed to adjustments in trade policy. ("We are currently encountering inflation pressure from external factors.") He has held discussions 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 resulting from tariffs will make it difficult for them to overlook the inflation issue. "Essentially, what is being expressed here is that we have a potential inflation problem. We will focus on this. And when we obtain more evidence regarding economic growth, we are willing to respond at that time - not prior to it. No one desires to act in this manner. But in this context, this might be the approach they have to adopt."