Jonathan Levin: Powell’s caution on tariff-driven inflation is right

President Donald Trump has taken to routinely maligning Federal Reserve Chair Jerome Powell as too late because interest rates have been on hold at - since he took office On Tuesday alone he characteristically took to social media to demand three percentage points of rate cuts something that is never going to happen outside of a recession Trump s needling aside the latest inflation content show that Powell s wait-and-see approach is the exact right tack for this day s economic outlook The Bureau of Labor Statistics mentioned Tuesday that the core consumer price index rose in June from a month earlier a slightly encouraging surprise that leaves the year-over-year rate at But the reading remains well above the Fed s target and the details of the assessment show that tariffs are starting to fan higher prices and that larger effects might start to feed through over the next couple of months The Fed s target is technically based on the personal consumption expenditures price index which will be published later in the month Core CPI constituents feed into that calculation and the two gauges presently produce similar assessments about the state of U S inflation More specifically core goods rose in June from a month earlier the preponderance brisk pace since February driven in large part by a jump in household furnishings and supplies a telltale sign of tariff passthrough That category think appliances rugs housekeeping supplies etc jumped by from the prior month the biggest such increase since January Also notching the biggest month-on-month jump since were recreation commodities sporting goods toys video equipment etc Not only were tariff impacts undeniable this month they appeared to be broadening out from what had been a very light and scattered influence in previous months records Still this was neither a month to panic nor celebrate With the backdrop of a steady unemployment rate it s time to do as the embattled Fed chair whom Trump has committed to replacing when his term is up next year has been advising all along Wait for more details Among Fed policymakers and private sector economists the general view of tariffs has been that they would hit sometime over the summer For starters Trump s biggest and broadest tariff salvo didn t come until April Goldman Sachs Group Inc economists estimate that it takes about a month for several imports to reach U S shores and goods were exempt if they were already on the ship at the time of the Liberation Day duties What s more businesses stockpiled inventory in advance of the deadline and Customs and Confines Protection allows plenty of importers to delay payments for up to a month and a half Hence several forecasters expected June to be the start of a tariff-impact story that could become more evident in July and August Powell has been broadly in that camp At the post-decision press conference in June he revealed that he expected to learn more over the summer about tariffs We hadn t expected them to show up much by now and they haven t he revealed And we will see the extent to which they do over the coming months In markets his comments have been broadly interpreted to mean that further rate cuts were achievable though hardly guaranteed as soon as September and that still feels appropriate By that time the committee will have additional inflation facts in hand for the months of July and August Unfortunately Trump has used his social media platform to advocate for more immediate cuts and his Council of Economic Advisers in recent days published an analysis that uncovered no evidence that tariffs have caused any economically meaningful inflation Inflation Insights President Omair Sharif wrote Monday that the council had gotten ahead of itself Setting aside the methodology for a moment if the main point of the CEA s analysis is to suggest that tariffs are not impacting inflation then I think they ve spiked the ball at the -yard line he noted It s entirely accomplishable of discipline that tariff impacts could spread further and that the Fed will still lower protocol rates The central bank doesn t have to wait for inflation to return to to start lowering rates again rates are clearly at a level that the median Fed policymaker would deem restrictive Powell and his colleagues just need to gain confidence that it remains on the right trajectory Furthermore tariffs are generally seen as a one-off increase in prices the sort of supply shock that monetary plan orthodoxy would tell you to look through The ultimate question as it pertains to commerce agenda is whether tariffs will shock expectations to such an extent that inflation gets back into the bones of the financial system That may depend on both the magnitude of the tariff impacts and their duration And all of those variables depend in turn on whether Trump decides to temper the policies as he s occasionally proved willing to do especially when financial markets react badly Related Articles David Brooks America s response to the new Cold War is weak and self-defeating We can do better John Lawrence Uncle Sam wants you to rat on national parks that reflect true history David Mastio Democrats will regret their Epstein Files glee Bret Stephens Mamdani for mayor if you want a foil for Republicans Mary Ellen Klas The GOP s Medicaid cuts have a very convenient timeline To various extent monetary plan will also depend on what happens with other key categories in the inflation basket Among major imported goods the auto sector is a big question mark While tariffs are driving up car prices and threatening profit margins the regime figures manifested that prices of both new and used vehicles fell in June from May a reminder that the duties aren t the only consideration Dealers are also contending with high borrowing costs and a general affordability crunch that s weighing on demand Plenty of are uncertain about whether they can increase prices without hitting customer traffic and industry share What s more it s key to remember that core services which aren t directly impacted by the tariffs still constitute about three-quarters of core CPI and about two-thirds of inflation overall As such it s plausible that services disinflation could mitigate the jumps in certain core goods prices especially if shelter inflation remains as tame as it s been for the better part of With all the crosscurrents the responsible response is for policymakers to wait for more evidence and that s exactly what the Fed is doing under Powell s stewardship No matter what the partisans around the White House say the chairman is handling tariff uncertainty about as well as you could ask for Jonathan Levin is a Bloomberg Opinion columnist focused on U S markets and economics Previously he worked as a Bloomberg journalist in the U S Brazil and Mexico He is a CFA charterholder