Federal Reserve Faces Inflation Divide Amid Tariff Tensions

The U.S. Federal Reserve finds itself at a crossroads as policymakers grapple with conflicting priorities: taming persistent inflation while supporting a faltering labour market. On September 22, 2025, several Fed officials publicly aired their divergent views, revealing a deep split on whether to prioritise curbing inflation or boosting employment through interest rate adjustments. With inflation running above the Fed’s 2% target and tariffs complicating the economic outlook, their decisions will shape borrowing costs and market dynamics for global investors.

Three Fed officials—Beth Hammack, Raphael Bostic, and Alberto Musalem—expressed unease about inflation, which, as measured by the Personal Consumption Expenditures (PCE) price index excluding food and energy, is rising at nearly 3% annually. “I am concerned about the inflation that has been too high for a long time,” Bostic told the Wall Street Journal, signalling reluctance to cut rates further at the Fed’s October 2025 meeting. The trio pointed to President Donald Trump’s tariffs as a key driver of price increases, though Musalem noted their impact has been less severe than anticipated. These tariffs, combined with other economic pressures, have kept inflation above the Fed’s 2% goal, last achieved in 2021. The cautious stance reflects fears that premature rate cuts could exacerbate price pressures, impacting everything from consumer goods to business loans.

In sharp contrast, Fed Governor Stephen Miran, a recent Trump appointee, advocated for steep rate reductions, targeting a federal funds rate range of 2.75% to 3% by year-end. Miran downplayed tariff-related inflation concerns, stating, “With respect to tariffs, relatively small changes in some goods prices have led to what I view as unreasonable levels of concern.” He argued that Trump’s immigration policies would reduce rental demand, easing a major component of inflation. Miran’s position, aligning with Trump’s call for rapid rate cuts, has sparked debate about the Fed’s independence, especially given his dual role as a White House economic advisor. His dissent at the September FOMC meeting, where he pushed for a half-point cut, underscores the widening rift among policymakers.

The Fed’s September decision to lower the federal funds rate to 4%–4.25%, the first cut since December 2024, was a “risk management” move to bolster the labour market, according to Chair Jerome Powell. However, the FOMC’s “dot plot” revealed significant division: seven of 19 members expect no further cuts in 2025, while 11 anticipate at least one more quarter-point reduction. Markets, per the CME Group’s FedWatch tool, are pricing in an 89.8% chance of a cut at the October 28–29 meeting, with expectations of further easing by December. The S&P 500, as shown in the finance card above, hit record highs, reflecting optimism about potential rate relief, but uncertainty persists as tariffs could push inflation higher. Investors are closely monitoring upcoming CPI data, due October 15, 2025, for clues on the Fed’s next steps.