"Fed's Megaphone": Tariffs have become a key issue that the Federal Reserve must focus on when adjusting the Intrerest Rate.

On March 20, Wall Street Journal reporter Nick Timiraos, known as the "Fed's mouthpiece," said that the Fed's economic projections show (although its interest rate projections have not yet been reflected) that the economic outlook has changed dramatically in just three months, and that the threshold for rate cuts has been raised. Not only have officials raised their core PCE inflation forecasts for the second time in a row (from 2.2% at the end of 2025 to 2.5% in September to 2.8% in December and 2.8% in March), but some officials have also slightly raised their forecasts for 2026 and even 2027. In addition, 19 out of 18 officials believe that inflation risks are skewed to the upside. The labor market may need to weaken to prompt a rate cut. Powell hinted that the change in inflation forecasts was almost entirely attributable to trade policy adjustments. ("We are now facing inflationary pressures from external factors.") Speaking to two former Fed officials who served during trade tensions in 2019 and inflation during the pandemic in 2021, I argue that price resets due to tariffs will make it difficult for them to ignore inflation. "It's basically saying that we have a potential inflation problem here. We're going to focus on that, and we're willing to react when we get more evidence on economic growth – not before that. No one wants to behave this way. But in this environment, it may be something they have to do."