No Interest Rate Cut by US Fed in the Short Term? Yellen Warns: Trump's Tariffs Will Cause Inflation to Rebound to 3%

Former US Treasury Secretary Janet Yellen has forecasted that although the US inflation rate is showing a slowing trend, President Trump's tariff policies will lead to higher inflation and a decline in average household income.

"I expect that, due to the impact of tariffs, the inflation rate will reach at least 3%, or slightly above 3%, this year," Yellen said on a show on Thursday.

However, Yellen also pointed out that, in terms of Trump's tariff policies, "there is still a great deal of uncertainty about which (tariff measures) will actually take effect."

But she said, "I am quite confident that we will see an impact on prices from (Trump's tariff policies)."

Yellen added that this would reduce average household income. "The most recent and optimistic estimates I've seen suggest that the average household will lose about $1,000 in income due to tariffs and their ripple effects," she said.

"This figure could be higher, depending on how the tariff plans progress," she said.

Yellen's remarks came as data from the US Bureau of Labor Statistics showed that the increase in the inflation rate in recent months has been lower than expected.

Data released on Wednesday showed that the US Consumer Price Index (CPI) rose 0.1% MoM and 2.4% YoY in May, both lower than market expectations of 0.2% and 2.5%, respectively. The core CPI, which excludes food and energy costs, rose 2.8% YoY, remaining at its lowest level since March 2021 and also below market expectations of 2.9%.

The cooling of inflation has prompted US President Trump to increase pressure on Fed Chairman Jerome Powell to lower interest rates. Trump fiercely criticized Powell as a "dummy" at the White House on Thursday, claiming that a 2 percentage point interest rate cut could save the US $600 billion a year.

Meanwhile, Trump's allies have also argued that tariffs will not exacerbate inflation.

Yellen, who served as Fed Chairman from 2014 to 2018, said that the Fed should now "be concerned about the possibility of second-round effects, or wage increases or inflation expectations leading to persistent inflation" .

She pointed out that the Fed "cannot accurately gauge how tariffs will affect labour market spending or inflation."

"Therefore, I expect (the Fed) to continue to remain firmly on the sidelines," she added, suggesting that the Fed may continue to adopt a wait-and-see approach.