President Donald Trump's plan to impose fresh tariffs of 10% to 12.5% on 60 trading partners has resurrected former Federal Reserve Chair Jerome Powell's warning that trade duties would keep goods inflation elevated, just as the central bank weighs an interest-rate decision against a rare quadruple supply shock. Since early June the major indexes have marched to records, the Dow up 0.51%, the S&P 500 up 0.02%, the Nasdaq down 0.18%, but the rally masks the pressure building underneath.
The tariff timeline
Powell used his final FOMC meeting on April 29 to draw a direct line between tariffs and sticky prices. Excluding food and energy, core PCE had risen 3.2% over the 12 months through March, a pace he said "largely reflects the effects of tariffs on prices in the goods sector." The Supreme Court invalidated the broad April 2025 duties in February 2026, yet the administration quickly replaced them with a temporary 10% levy that expired last week. The new Section 301 duties, reported by the Financial Times on July 21 and confirmed by the administration days later, cover dozens of countries and range from 10% to 12.5%. Unfinished imported goods caught in the net raise input costs for U.S. manufacturers, who pass them through to consumers.
Four inflation drivers
Tariffs are only one piece of the puzzle. The Iran war has shut the Strait of Hormuz, sending crude and fuel prices soaring. Headline inflation cooled from 4.2% in May to 3.5% in June, but core PCE forecasts have barely moved, suggesting the energy shock has bled into broader prices. June FOMC minutes added a third leg: AI-driven inflation. Demand for chips and memory has outstripped supply, handing semiconductor firms "otherworldly pricing power" that lifts costs for every downstream buyer. Together with the new duties, policymakers face a quadruple whammy, energy, broad-based, AI, and tariff pressures all firing at once.
The rate decision dilemma
The FOMC's July 29 meeting was already shaping up as one of the most uncertain in years when the tariff details landed. With core PCE still running at 3.2% as of March and four distinct supply-side forces pushing upward, the committee has little room to declare victory. Markets have priced resilience, but the data underneath the indexes tells a different story: inflation is not retreating, it is being reinforced.