Still early to assess tariff impact on economy, says US Fed report

The Federal Reserve's latest Monetary Policy Report to Congress, released on Friday, said US inflation is somewhat elevated and the labour market is in solid shape, but suggested that President Donald Trump's tariffs have likely only begun to be felt and repeated the central bank's view that it can wait for more clarity before taking action.

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"The effects on US consumer prices of the increase in import tariffs this year are highly uncertain, as trade policy continues to evolve, and it is still early to assess how consumers and firms will respond," said the report, which comes ahead of next week's testimony before Congress by Fed Chair Jerome Powell.

"Although the effects of tariffs cannot be observed directly in the official consumer price statistics, the pattern of net price changes among goods categories this year suggests that tariffs may have contributed to the recent upturn in goods inflation." Prices of household appliances, for instance, and some consumer electronics have risen. So far, though, car price inflation hasn't been particularly strong, the report said, though autos too have been exposed to tariff increases.

Inflation related to housing services, meanwhile, is elevated but trending downward as market rent increases near their pre-pandemic averages, and inflation in services like travel, dining, and other non-housing-related items has eased, reflected softening demand for labour, the report said.

And while surveys show households expect sharply higher inflation in the short-term, longer-term inflation expectations remain consistent with the Fed's 28 goal, it said.