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As the transition to a new administration takes shape, US Treasury Secretary Janet Yellen issued a cautionary note to Donald Trump. With his plans to implement significant tariffs on key trade partners like Canada, Mexico, and China, Yellen warned that such actions could spark a rise in inflation.
Trump, preparing to step into the presidency next month, is considering these heavy tariffs as a tactic to address “unfair trade practices.” However, Yellen pointed out that while targeted penalties might hold some merit, sweeping trade measures could hurt the competitiveness of certain US industries and place a financial strain on households.
The risk here, she noted, lies in the possibility of undoing recent progress in curbing inflation, which saw a dramatic climb to its highest point in four decades back in 2022 due to supply chain disruptions and accumulated demand.
Adding to the discussion, Trump has expressed his desire for more influence over monetary policy—a stance that, if acted upon, could disrupt the tradition of Federal Reserve autonomy. Yellen, who previously led the Fed, underscored the importance of maintaining this independence while speaking at a Wall Street Journal event. “Commenting on the Fed or threatening its independence undermines the trust of financial markets and the American public in this critical institution,” she remarked.
While Trump has maintained a firm position on leveraging tariffs as a tactic, he seems to have eased his approach towards the Fed. In a recent interview with NBC News’s Meet the Press, he mentioned that he would not seek to remove Federal Reserve Chair Jay Powell before his term concludes in May 2026.
Though Trump’s legal options to remove Powell are limited, the mere suggestion sparked worries about potential challenges to the Fed’s stability over the coming years. Powell, however, sought to alleviate those fears, reaffirming earlier this month that the Fed’s operations are safeguarded by established laws.
On another note, Yellen expressed lingering concerns about the nation’s “fiscal sustainability,” highlighting the growing burden of US sovereign debt. She candidly stated, “I regret that we haven’t made more progress. The deficit must be reduced, particularly in the context of rising interest rates.”
Reflecting these apprehensions, investment firm Pimco announced this week that it has grown cautious about acquiring long-term US government bonds. This hesitancy stems from sustainability uncertainties and the potential for increasing inflation under Trump’s administration.
