Trump is about to test whether the Fed learned its inflation lesson

In 2021, as the US economy recovered from the pandemic, consumer prices began to creep higher. Federal Reserve officials said then that rising inflation would only be “transitory.”

The Federal Reserve admits it badly misjudged the beginning of the inflation crisis, but officials hope they won’t make the same mistake again. President Donald Trump’s tariffs are about to determine whether America’s central bank is up for the challenge. In 2021, as the US economy recovered from the pandemic, consumer prices began to creep higher. Fed officials said then that rising inflation would only be “transitory.” Notoriously, that proved to not be the case, and, by the spring of 2022, the Fed was in the throes of its most aggressive rate-hiking campaign since the 1980s. Inflation has improved considerably since then, but the Fed still gets flak for being so wrong in 2021. Now the Fed is working on a new “policy framework,” including lessons from its mistaken bet that high inflation would be just a blip. And while that framework needs to work for future crises, it’s especially urgent at the moment — given the chaos and confusion already spurred this year by President Donald Trump’s sweeping economic agenda, centered on tariffs, tax cuts and deregulation. “I think it’s a fair criticism that we could have acted earlier,” James Bullard, who served as president of the Federal Reserve Bank of St. Louis from 2008 to 2023, told CNN in an interview late last year. “But you’re never going to be totally certain in macroeconomics about what’s going to happen next and this is the world we’ve always lived in.”