World Insights: Potential comeback of U.S. inflation to complicate Fed policy

by Xinhua writer Yanan Liu

NEW YORK, Nov. 18 (Xinhua) -- Inflationary pressures in the United States, especially from policies of the upcoming Trump administration, would complicate the Federal Reserve's monetary policy and make it tricky in 2025, according to U.S. experts.

INFLATION NOT UNDER CONTROL

Although U.S. inflation has come down to around 2.5 percent from over 9 percent in mid-2022, it's premature to announce that inflation has been under control.

The Federal Reserve jumped the gun in cutting rates in September, and then cutting them again in November, said Richard Roberts, professor of economics at Monmouth University and former Federal Reserve executive.

Speaking at a panel discussion organized by RUC North America Alumni Association on Saturday, Roberts said there's ample evidence that inflation is still built into the system and is starting to percolate up again as a baseline.

"Even without Donald Trump on the doorsteps, we have not beaten inflation," said Roberts, referring to inflationary policies proposed by U.S. President-elect Trump.

Roberts said Trump's policies are somewhat a "mixed bag" with his stance on immigration and tariffs in the short run while expected increase of energy production and deregulation should provide some downward pressures on inflation or inflationary relief.

U.S. inflation may not really have been under control and it will probably come back soon, maybe even severe, said Shanquan Li, managing director and senior portfolio manager for the Global Equities team at Invesco Limited, an American independent investment management firm.

If the policy proposals by Trump start to be implemented, the inflation problem is going to happen again, Li warned at the panel discussion.

Though recent statistics showed that U.S. inflation data is largely in line with expectations, deflation stalled.

The U.S. headline consumer price index (CPI) in October increased by 2.6 percent year on year, marking the first acceleration since March 2024.

Meanwhile, the U.S. producer price index (PPI) in October posted a year-on-year growth of 2.4 percent, up from 1.9 percent in the previous month.

The general trend for inflationary pressures is up and inflation would be around 3 percent by the end of 2025, according to Roberts.

FED IN TRICKY SITUATION

The Fed kicked off the easing cycle in September by cutting benchmark interest rates by 50 basis points, but the anticipated path of the Fed's easing monetary policy could be challenged due to renewed inflation pressures.

The Fed is in "an amazing environment" right now and hopes to lower the interest rate to neutral level around 4 percent over time, noted Roberts.

"But, this is not doable if inflation continues to edge up as it is. And then we have new policies that add additional pressure to the upward movement," said Roberts.

Roberts said the Fed's objectives were getting tricky due to inflationary pressures from the policy side and its continuous dependence on interest rates to fight inflation.

This very much complicates the Federal Reserve's monetary policy, added Roberts.

The rebound of inflation would make the Fed run into a serious dilemma, echoed Li.

"What are you gonna do? Lower the rate to continue along your own path? Or you have to consider that the new policy really gives you another challenge," Li said.

The Federal Reserve policy making becomes very tricky next year, Roberts told Xinhua on the sidelines of the panel discussion.

"I think they're gonna have some problems next year in terms of implementing monetary policy. It's gonna be tricky," Roberts added.

Against the backdrop of the pain that American people have felt due to the high inflation over the last couple of years, any amount above the Fed's target is not acceptable, said Roberts.

From the Beige Book issued periodically by the Fed, "We're starting to see some anecdotal evidence there that they're having a difficult time passing cost increases onto the consumer. The consumer is getting tapped out ... If a company faces higher costs and can't pass those on to the consumer, they have to eat those costs," said Roberts.