The outlook for inflation is increasing in the minds of both consumers and Federal Reserve bankers after President Trump imposed a 10 percent general tariff this week and triple-digit tariffs on top U.S. trading partner China.
New York Fed president John Williams said Friday at the Puerto Rico Chamber of Commerce he expects the tariffs will cause inflation to rise to between 3.5 percent and 4 percent this year.
Inflation currently is increasing at a 2.4 percent annual rate as measured by the Labor Department’s Consumer Price Index (CPI) and a 2.5 percent pace as measured by the Commerce Department’s Personal Consumption Expenditures (PCE) price index.
The CPI deflated from February to March, dropping to 2.4 percent from a 2.8 percent increase in February.
Year-ahead inflation expectation also leapt to 6.7 percent in April from 5 percent in the University of Michigan’s bench consumer sentiment survey, released Friday. Sentiment dropped for the fourth consecutive month, sinking by 11 percent.
More people are expecting unemployment to rise, as well. The share of consumers anticipating more people to be out of work rose for the fifth month in a row and is now clocking the highest reading since 2009, Michigan pollsters reported.
The New York Fed’s Williams is also anticipating higher unemployment.
“I expect the unemployment rate to rise from its current level of 4.2 percent to between 4.5 and 5 percent over the next year,” he said Friday.
The Federal Reserve's current summary of economic projections, which was released almost a month before Trump’s April 2 “Liberation Day” tariffs, showed moderating conditions in the economy.
It predicted overall growth for 2025 at 1.7 percent, an annual unemployment rate of 4.4 percent, and an inflation rate of 2.7 percent.
Since the tariffs have gone into effect, many banks and economic forecasters have revised their projections downwards, and some have increased the likelihood of a coming recession.
Multiple surveys from earlier this year have shown increasing anxiety among consumers and businesses. Business uncertainty rose in a recent survey by the National Federation for Independent Business, and pessimism increased among households in the New York Fed’s survey of consumer expectations.
The “lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes,” Michigan pollsters said Friday.
