Boston Fed Warns Trump Trade Policies Risk De-anchoring Inflation

The Federal Reserve Bank of Boston released a study warning that rising inflation expectations in the United States threaten the Federal Reserve System's ability to maintain its 2 per cent inflation target. Researchers Philippe Andrade and Michael Wicklein identify a surge in expectations starting in spring 2025, which they attribute to households anticipating higher prices for imported goods resulting from the Donald Trump administration's aggressive trade policies.

The study notes that this current dynamic mirrors the late 1970s, creating a risk that inflation expectations could become de-anchored. This differs from pandemic-era spikes, which were primarily driven by volatile food and gas prices.

Supporting data from the Federal Reserve Bank of New York shows that one-year ahead inflation expectations jumped to 3.4 per cent in September. Additionally, three- and five-year expectations have exceeded the official target by a full percentage point. While some Federal Reserve officials previously viewed such data as outliers, the Boston Fed's analysis suggests a more systemic risk to price stability.