Inflation unexpectedly cooled in April despite Trump's big tariffs announcement
Inflation unexpectedly slowed in April to 2.3% over the year, progressing toward the Federal Reserve's 2% target and the smallest increase since February 2021.
Price growth was expected to stay flat at 2.4%, but now inflation has cooled for three consecutive months.
A recent UBS note predicted that April data would mark the start of the impacts of Trump's implemented tariffs, and that May through October would show larger impacts if the trade policies stand.
Last week, the Federal Open Market Committee members decided to hold interest rates steady, as they wait for more certainty around tariffs' impacts. CME FedWatch, which shows what traders think will happen to interest rates, showed a 92% chance before the inflation report that rates will be unchanged at the FOMC's next scheduled meeting in June.
Trump announced what he called "reciprocal" tariffs on countries around the world on April 2, before quickly pausing many of them for 90 days. A baseline of 10% has been in effect, along with a 145% tariff on most imports from China and 25% tariffs on autos, steel, and aluminum. On Monday, the Trump administration announced a trade deal with China, a key trade partner for the US. Both countries will cut rates by 115 percentage points for 90 days. Last week, Trump said the US and UK reached a trade deal. The 10% tariff is still in effect, but the two countries negotiated agreements on vehicles, steel, and aluminum from the UK.
Karoline Leavitt, the White House press secretary, said on Friday that Trump "is committed to the 10% baseline tariff, not just for the United Kingdom but for his trade negotiations with all other countries as well."
BeiChen Lin, senior investment strategist at Russell Investments, said that businesses likely stocked up before Trump's 10% tariffs, which could be delaying their impact on inflation figures.
"If the broad 10% universal tariff doesn't get negotiated away, then eventually we will likely see a one-time boost to price levels, which would also translate into a temporary boost to the inflation rate," Lin said.
Tariffs could also affect overall economic growth and the job market.
"If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment," Federal Reserve Chair Jerome Powell said in a May 7 press conference.
Powell said at the press conference that the economy is resilient, with a solid job market and inflation just above the Fed's target of 2%. Real gross domestic product shrank in the first quarter of 2025, the first time since 2022, but a large rise in imports that subtracts from growth contributed to that contraction. Job growth was better than expected in April, but still indicated a tougher job market for unemployed Americans.
Powell said the Fed's policy is "100 basis points less restrictive than it was last fall. And so, we think that leaves us in a good place to wait and see."
This is a developing story. Please check back for updates.
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