Federal Reserve officials have been indicating that they may hold back on cutting interest rates at their next meeting because they are still convinced that tariffs threaten to raise inflation.
On Wednesday, this view got hit with a wake-up call from the private sector.
Survey results released by the Federal Reserve Bank of Atlanta show that businesses have largely accepted that tariffs do not pose a risk of higher inflation.
Over the next 12 months, respondents now expect inflation to rise just 2.2 percent, almost meeting the Fed’s target of two percent. This is in line with where expectations were before the Trump administration started raising tariffs.
It is also below where inflation expectations were when the Fed began cutting interest rates at the tail-end of the Biden administration.
There are reasons to take this data seriously. For one, businesses plan their own prices based on their expectations for inflation. They have skin in the game, in other words. What’s more, businesses know how they and their vendors are responding to tariffs and so they presumably have a better view of the effects on inflation than economists inside the central bank.
The survey provides some comfort to the Trump administration, which has been focused on the issue of affordability.
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