• Atlanta Fed President Raphael Bostic warns U.S. businesses are struggling to absorb new tariff costs and may soon be forced to pass more onto consumers.
  • The inflationary impact is proving slower and more persistent than anticipated, potentially delaying rate cuts and leading Bostic to forecast just one cut in 2025.
  • A divide exists within the Fed, with some officials viewing the price pressures as transitory while others fear a fundamental shift in inflation expectations.

Federal Reserve Bank of Atlanta President Raphael Bostic issued a stark warning on Thursday, stating that U.S. companies are reaching their limit in absorbing the costs from a new wave of trade tariffs, a dynamic that threatens to fuel persistent inflation and complicate the central bank's calculus on interest rates.

"The effects are slower and more persistent than expected," Bostic said, according to people familiar with his remarks. He emphasized that this is "not a one-time thing," with frequent tariff adjustments forcing businesses into a constant state of recalculating costs and supply chains. The resulting price pressures, he fears, could delay the Fed's ability to cut interest rates, with his own forecast now pointing to a single cut in 2025 rather than two.

The comments highlight a growing fissure among U.S. monetary policymakers. Some, like Fed Governor Christopher Waller, have suggested the inflation spike from tariffs can be "looked through" as a temporary phenomenon. Bostic, however, represents a cohort concerned that the policies are triggering structural economic changes that could fundamentally alter inflation expectations for years to come.

This uncertainty arrives as other parts of the economy show signs of softening. Recent jobs data has been weaker than expected, and consumer spending is finally showing tentative signs of cooling after remarkable resilience. The combination leaves the Fed in a cautious, data-dependent holding pattern, wary of cutting rates too soon and letting inflation become entrenched.

Efforts to reach a spokesperson for the Atlanta Fed for further comment were not immediately successful.

The ongoing tariff adjustments are part of a broader policy shift aimed at reshaping U.S. supply chains and reducing reliance on international suppliers. While the goal is to bolster national competitiveness, the immediate effect is creating a prolonged period of cost uncertainty for import-reliant businesses. Without the ability to absorb these costs indefinitely, firms are increasingly faced with the difficult choice of raising prices for consumers or cutting costs elsewhere, potentially impacting hiring and investment.

For markets, the implication is a higher-for-longer interest rate environment. Bostic's revised outlook suggests the Fed may not begin easing policy until well into 2025, with the full effect of the tariffs potentially pushing further decisions into 2026.