Powell has a plan to evaluate tariff inflation, but it won't be easy

On the crucial task of measuring the impact of tariffs on inflation, Federal Reserve Chairperson Jerome Powell has a strategy: to separate the signal from the noise. The scale and scope of Mr. Trump's sweeping global tariffs make this already difficult task even more challenging. Fed officials must decide this year whether to lower interest rates further to support the economy or keep them high for longer to curb inflation. Economists expect this series of tariffs to tear the Fed apart by weakening economic growth and pushing up prices. To choose the right policy path, officials will first have to determine how much higher inflation is linked to tariffs, and then assess whether the rise may be temporary or more permanent. Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, said that compared with the tariffs in Trump's first term, "this time around, I do think the impact will be more diffuse and therefore more difficult to determine". "More goods are affected. More companies are affected." At a fundamental level, Fed officials will focus first on the relationship between price changes and imports affected by tariffs, said William English, a professor at the Yale School of Management and former division head of the Fed's board of governors. "In a way, they're inconsistent, and maybe there's something else going on," English said.