Washington – The Federal Reserve System continues to figure out how tariffs may affect inflation and the overall growth dynamics of the US economy. In the context of these considerations, the Fed is trying to balance two main tasks: curb the price surge and maintain full employment.

As of September 4, 2025, in the next two weeks they expect the first cut to the policy rate since December, but the subsequent trajectory of monetary policy remains uncertain and depends on how tariffs and the labor market unfold.

Fed officials have not yet reached agreement on how broadly tariff measures by the president could heat inflation, and whether the US labor market will withstand future fluctuations.

The Fed operates under two mandates – price stability and maximum employment – and both are currently under pressure, not seen since the stagflation of the 1970s and the early 1980s.

“We are in uncharted territory, and that is reflected in the Fed’s thinking. We are still in the tariff fog, but the Fed sees labor-market softening as a near-term risk”

– Brent Shutte

Outlook for Inflation and Monetary Policy

Although some officials see tariff-driven inflation as temporary, others do not share such an assessment and expect a more prolonged wave of influence.

Chris Waller, viewed as a candidate for the Fed chair, along with his colleagues discuss the possibility of several rate cuts over the coming months, while Rafael Bostic believes that one cut may be justified only within the framework of decisions for the rest of the year.

“As the baseline scenario, I expect tariff effects to ripple through the economy in two to three quarters, and the impact on inflation to fade away after that”

– Alberto Musalem, president of the Federal Reserve Bank of St. Louis

At the same time, some officials emphasize the risks: the Cleveland Fed president Beth Hammack has no vote on current decisions, while the Boston Fed president Susan Collins has a vote. According to Oxford Economics analyst John Canavan, Collins could voice opposition during the September 16–17 meeting if the discussion centers on a rate cut.

According to the Department of Labor, the labor market remains mixed: unemployment is rising in some groups, the number of job openings is decreasing, and the overall unemployment rate remains moderate. In a period of tariff turbulence, they can heighten inflationary pressure, but many analysts are surprised by the view that these effects will fade or subside over time.

In the coming days, the Fed and the financial sector will again await fresh data: August employment and new inflation reports will help determine whether tariffs create a lasting impact or remain a short-term factor that fades over time.