STEVE INSKEEP, HOST:
How can businesses and consumers prepare for higher tariffs? First, President Trump is repeating his complaints about the Federal Reserve, pressing its leader, Jerome Powell, to cut interest rates more quickly.
SARAH MCCAMMON, HOST:
The president's own tariffs are making it harder for the Fed to bring inflation under control. A new report from the Labor Department shows inflation heated up last month. Economists say part of that price increase can be traced to the president's double-digit tariffs.
INSKEEP: NPR's Scott Horsley is covering all this. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: This is a really interesting topic for me because the president has, by design, trampled a lot of the limitations on his power in the executive branch - has not yet directly interfered with the Federal Reserve, but he certainly talks about it a lot. What's behind that?
HORSLEY: Yeah. Presidents often want lower interest rates to juice the economy and make it cheaper for families and businesses to borrow money. In Trump's case, he's also trying to cut the federal government's own interest expense, which is closing in on $1 trillion this year and could go even higher as a result of the tax cuts and spending increases that congressional Republicans just passed. So Trump is unhappy that Fed Chairman Jerome Powell and his colleagues have not moved more quickly to cut interest rates. Here's the president speaking to reporters outside the White House yesterday.
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PRESIDENT DONALD TRUMP: Jerome Powell is too late. He's way late. Interest rates should be coming down. We're - we have a very, very successful country. We should have the lowest interest rate anywhere in the world, and we don't.
HORSLEY: But in almost the same breath, Trump boasted about the tens of billions of dollars that the government is collecting in tariffs. And those tariffs are one reason the Fed is cautious about cutting interest rates.
INSKEEP: Well, talk me through that. How is it that tariffs would affect inflation?
HORSLEY: Well, the effects have been fairly muted so far. But in the June inflation report, which came out yesterday, we saw that inflation was higher than the month before. And some of that reflects Trump's tariffs on imported goods like toys and clothing and appliances. Stephen Kates, who is a financial analyst at Bankrate, says rising inflation makes Powell and his colleagues almost certain to hold interest rates steady at their next meeting a couple of weeks from now, despite the full-court press from the White House.
STEPHEN KATES: The Fed's got a couple months here to just watch and wait and see exactly how quickly inflation is rising. I think at this point, it's cinched. There will be no cut in July.
HORSLEY: Now, that's going to be a disappointment for the president. But if it weren't for Trump's own double-digit tariffs, the Fed might well be in a position to cut interest rates right now.
INSKEEP: How would inflation be affected if the president goes through with the multiple, much higher tariffs that he's threatened on multiple countries for August 1?
HORSLEY: Yeah. That could push prices even higher, although right now investors are skeptical that the president's actually going to follow through on those tariff threats. If Trump actually were to triple the import tax on goods from the European Union, for example, as he threatened to do, there would likely be a big sell-off in the stock market, and the Europeans would probably retaliate with tariffs of their own. But, you know, even if tariffs don't go any higher, import taxes are already the highest they've been in almost a century. And so far, only some of that cost has been passed along to consumers. Kates says we are likely to see more tariff-driven price hikes in the months to come.
KATES: Well, I think people are in for, you know, at least another six months or so of slowly increasing inflation. But I think by the end of the year, we're probably not going to be any higher than somewhere between 3% and 3.5%.
HORSLEY: Now, that's not nearly as high as the 9% inflation we saw back in 2022. But it's still higher than the Fed would like, and it's not the direction Trump promised to take prices when he was on the campaign trail last year.
INSKEEP: NPR's Scott Horsley, thanks.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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