MNI INTERVIEW2: Tariffs Inflation Impact Slow To Come -Mester

Former Cleveland Fed President Loretta Mester told MNI the passthrough of trade tariffs to consumer inflation will take longer than expected, lengthening the Federal Reserve's evaluation of whether the price effects will be persistent. 

"We started to see a little bit of that in some of the categories in the CPI and PPI, but frankly, it's less than I think people thought. And I think it's taking a longer time, and it'll be more drawn out than people expected," she told MNI's Fedspeak podcast. 

"The U.S. economy is a very resilient economy. Businesses and consumers are still holding up. But again, we can't necessarily conclude that we won't see effects in the second half of the year, and I think that's what the Fed is evaluating." 

Firms have indicated they anticipate hiking prices as their input costs rise, but as prices stabilize, the Fed wants to know if inflation will come back down or continue to stay high, Mester said. The on-again-off-again nature of tariff announcements could contribute to persistent price pressures, as can elevated consumer inflation expectations, she added.

Since April 2, when President Trump first launched high tariffs aimed at most U.S. trading partners, "the most dire cases have come a little bit in," Mester said. And what the Fed has learned since then is firms "did what they had to do" to build up inventory and that they readjust supply chains to limit the impact, she said. 

Lost in the focus on tariffs' short-term impacts are ways that barriers to free trade will hurt the economy in the long run, making firms less innovative, competitive and efficient, Mester said. (See: MNI INTERVIEW: Fed To Cut Twice In 2025 On Weak Growth-Haslag)