It took the Fed years to bring down inflation. Then came Trump’s trade war

Late last year, it seemed like the Federal Reserve had pulled off the unlikely — tamping down the highest inflation in four decades without triggering a recession, an outcome known as a “soft landing.” Now, two months into President Donald Trump’s second term, that historic win could be reversed as a global trade war looms.

Late last year, it seemed like the Federal Reserve had pulled off the unlikely — tamping down the highest inflation in four decades without triggering a recession, an outcome known as a “soft landing.” Now, two months into President Donald Trump’s second term, that historic win could be reversed as a global trade war looms. Since Trump took office in January, his administration has overhauled trade policy, slashed the federal workforce, clamped down on immigration and reconfigured America’s relationship with its allies — structural changes that have put American consumers, businesses and investors on edge. During that time, major stock indexes went from hitting record highs to slipping into correction territory and consumer sentiment went from an eight-month high to its lowest level since November 2022. Now, Fed officials face the difficult task of figuring out how the economy will ultimately respond to Trump’s shock therapy. Analysts have already pointed to higher inflation and weaker growth this year, a toxic duo resembling “stagflation.” Central bankers are almost certain to hold interest rates steady at the conclusion of their March meeting on Wednesday, and Fed Chair Jerome Powell will likely reiterate that the economy remains in decent shape, but their latest projections will probably show the economy is trending toward stagflation, economists say. Powell’s tough job is to now communicate to an anxious America how the Fed will handle that looming twin threat, as various surveys show Americans’ perceptions of prices are changing for the worse. “It’s hard to say how these opposing forces will balance out in the end, and that’s what the Fed is having to consider right now,” Tom Bruce, macro investment strategist at Tanglewood Total Wealth Management, told CNN. “They’re data dependent, so they’re not making any moves at this meeting, but Powell will have to express that they’re watching the situation closely and staying prepared to make a policy change if necessary.”