The Federal Reserve Bank of Boston’s report highlights the potential inflationary impact of the tariffs proposed by the Trump administration. The imposition of 25% tariffs on Mexico and Canada, along with a 10% tariff on China, could have increased underlying price pressures by up to 0.8 percentage points, based on the central bank’s preferred price gauge, the personal consumption expenditures price index. This increase would have posed a challenge for the Fed, which is already grappling with inflation above its 2% target.

Boston Fed President Susan Collins emphasized in a TV interview the expected impact of broad-based tariffs on prices, affecting not just final goods but also intermediate goods. The report assumes that consumers would bear the brunt of the tariffs, with potential mitigating factors such as retaliatory actions, monetary policies, and exchange rates that could dampen the inflation estimates.

With the Fed having paused its easing campaign amid economic uncertainties, including President Trump’s aggressive tariff policies, there is a need for clarity on how these trade policies will unfold. While Canada and Mexico have received temporary reprieves from the tariffs, the future remains uncertain. Trump’s tariff agenda, aimed at imposing import taxes on U.S. trading partners, has raised concerns about its inflationary consequences and broader economic implications.

Overall, the report underscores the intricate relationship between tariffs, inflation, and economic stability, highlighting the importance of monitoring trade policies and their potential impacts on consumer prices and overall economic growth.