Economy

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Donald Trump’s threat to impose big tariffs on steel and aluminium is rippling across US industry, with companies ranging from manufacturers to oil and gas drillers facing increasing costs for the metals.Many executives are rushing to find ways to mitigate the political tumult and fallout from rising prices, even though the 25 per cent tariffs will not come into effect for another month.“So far what we’re seeing is a lot of cost and a lot of chaos,” said Ford chief Jim Farley at an automotive conference on Tuesday.He added that he would return to Washington on Wednesday to lobby policymakers for the second time in three weeks.“They need to understand that there’s a lot of policy uncertainty here,” he said. “But in the meantime we’re scrambling to manage the company as professionals.”The push to shore up supplies of crucial inputs comes after the White House on Monday said the US would impose tariffs of 25 per cent on all steel and aluminium imports from March 12, part of a sweeping programme of protectionist trade policies that have unsettled many American businesses.The US is a net importer of steel and aluminium, meaning the tariffs are expected to push up prices across the country’s market. The extra amount that plants in the Midwest pay for aluminium, compared with those on offer in London, has surged in recent days.Futures tracking the Midwest premium — a vital benchmark for prices paid by US companies, which includes transport, tax and other costs — for settlement next month have jumped 25 per cent since the end of January, according to LSEG data.For steel, even businesses that do not import the metal will feel the tariffs’ impact as domestic mills increase prices.Rye Druzin, head of steel pricing in the Americas at Argus Media, said prices had begun rising in the US in the past three weeks after Trump first threatened broad tariffs against Canada and Mexico, two of the biggest sources of US steel imports. Steelmakers have in turn pushed for higher prices. Futures tracking the price of hot-rolled coil — a widely traded product often considered a benchmark for steel prices — have risen about $70 to $850 a short tonne since the end of January in the US, according to FactSet data. “Mills are taking full advantage of the uncertainty around the current situation,” said Druzin.At Coca-Cola, aluminium and steel used in cans and bottles make up 26 per cent of drinks packaging worldwide. Chief executive James Quincey said new tariffs on aluminium imports could force the company to use more plastic bottles.But he added that the tariffs’ cost would probably be limited to North America, leaving 2025’s global sales volumes untouched.“It’s a cost,” said Quincey. “It would be better not to have it relative to the US business, but we are going to manage our way through.” Trade groups and analysts in the power sector warned that Trump’s tariff plans could clash with his goal of boosting domestic energy production, lowering prices for consumers and strengthening domestic manufacturing.The industry relies heavily on steel and aluminium for oil and gas drilling, pipelines, grid infrastructure and clean energy components such as wind turbines and racks for solar panels.“Unleashing American energy requires access to materials not readily available in the US,” said Dustin Meyer, American Petroleum Institute’s senior vice-president of policy, economics and regulatory affairs.“We are committed to working with the Trump administration on approaches that avoid unintended consequences.”Imports made up 40 per cent of US demand for pipes and other rolled metal goods, used by producers to drill wells, according to energy consultancy Wood Mackenzie. Canada and Mexico made up 16 per cent of US imports of those products last month.Aluminium ingots at a stockyard in Wuxi, China More

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The outlook for the January CPI calls for a monthly increase of 0.3% for the all-items index and a 12-month inflation rate of 2.9%. Core readings are projected at 0.3% and 3.1%, respectively.
Things only get more complicated from here as President Donald Trump’s tariffs could act as an inflationary counterweight to an otherwise disinflationary trend.

Cartons of eggs are displayed at a grocery store with a warning that limits will be placed on purchases as bird flu continues to affect the egg industry on Feb. 10, 2025 in New York City.
Spencer Platt | Getty Images

The January consumer price index report is likely to tell a familiar story: another month, another expected miss for inflation as it relates to the Federal Reserve’s goal, with concerns aplenty about what happens from here.
So instead of looking for hope from the headline readings, which aren’t expected to change much from December, markets will pore through the details for trends that could shed some hope that the Fed eventually will be able to start lowering rates again.

“Inflation is stuck above target, with risks skewed to the upside, activity is strong, and the labor market appears to have stabilized around full employment,” Bank of America economist Stephen Juneau said in a note. “If our January CPI forecast is correct, the case for the Fed to stay on hold will strengthen further.”
Bank of America is one of the most pessimistic voices on Wall Street in terms of expecting further Fed easing.
In fact, the bank’s economists believe the Fed will stay on hold for the rest of the year — and beyond — as inflation holds higher, the labor market remains strong and the economy generally stays out of the kind of trouble that would necessitate rate cuts. Traders otherwise figure the Fed to approve a quarter percentage point reduction in July and then stay put, according to CME Group data.
More immediately, Bank of America’s forecast pretty much meshes with the Dow Jones outlook for January CPI: a monthly increase of 0.3% for the all-items index and a 12-month inflation rate of 2.9%, the latter the same as December. Excluding food and energy, the respective core readings are projected at 0.3% and 3.1%, the annual mark just a notch down from the 3.2% reading in December.
From a details standpoint, increases are likely to be driven by rises in car prices and auto insurance as well as communications, according to Goldman Sachs. The firm expects only moderate downward pressure from airfares and, importantly, the rent-related categories that make up about one-third of the CPI weighting and have been largely responsible for inflation holding above the Fed’s 2% goal.

Things only get more complicated from here.

Optimism despite tariff concerns

While economists expect a good share of disinflation from some key categories, President Donald Trump’s tariffs could act as an inflationary counterweight.
“Going forward, we see further disinflation in the pipeline over the next year from rebalancing in the auto, housing rental, and labor markets, but an offset from an escalation in tariff policy,” Goldman economists said in a note.
There’s been some good news lately, though. While the University of Michigan’s consumer survey showed a surprising bump in inflation expectations, other measures indicate the outlook is actually softening.
The National Federation of Independent Business survey for January showed that just 18% of the small business gauge reported inflation as being their biggest issue, the lowest level since November 2021. Also, the Cleveland Fed’s first-quarter Survey of Firms’ Inflation Expectations showed that CEOs and other top executives see CPI to run at a 3.2% rate over the next 12 months. While that’s well above the 2% standard, it is a sharp drop from the 3.8% in the fourth quarter.
Amid the conflicting information, the Fed is expected to stay put.
Fed Chair Jerome Powell on Tuesday said the central bank is in no rush to cut rates further, while Cleveland Fed President Beth Hammack noted the persistence of inflation that could be exacerbated by tariffs as reason to stay put.
“While monetary policy needs to be forward-looking in nature, forecasts are no substitute for realizations. Or as they might have put it in Jerry Maguire, ‘show me the low inflation,'” Hammack said. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldJay Powell has defended the Federal Reserve’s authority over US monetary policy, as he vowed to “focus on the data” and avoid wading into politics despite calls from the White House and some lawmakers to cut borrowing costs.The Fed is facing the fiercest challenge to its independence to set interest rates since the 1980s, with Donald Trump claiming during his first week back in the White House that he understood monetary policy better than the central bank. Trump has also said borrowing costs should be lower. Fed chair Powell told lawmakers on the Senate’s banking committee on Tuesday that the central bank stood a better chance of keeping prices under control if it remained above the fray — and was in turn left to get on with its job of setting interest rates free from political interference. “We’ll make better policy, we’ll keep inflation lower, if we just focus on doing our job and stay out of politics, stay out of elections and don’t try to favour or hurt any political party, or any political filter and just try to focus on the data,” Powell said in his first appearance before the influential committee since Trump returned to the presidency. “If we start putting up political filters, we’ll be less effective at our already quite difficult job.” Powell was adamant that any decision by Trump to sack one of the seven members of the Fed’s board of governors was “pretty clearly not allowed under the law”. The remarks come as some Democrats are concerned that the Fed is already responding to Republican pressure. Democratic senators at the hearing cited the Fed’s plans to revisit rules on so-called stress tests for the country’s biggest banks, the departure of its chief supervisor Michael Barr from that role and its decision to quit the Network for the Greening of the Financial System as evidence that it was succumbing to Republican attacks. However, Powell made clear on Tuesday that when it came to monetary policy, the Fed would not respond to pressure from the new administration and lawmakers on both sides of the aisle to cut interest rates fast. Show video infoThe Fed chair reiterated that strong growth meant rate-setters were “not in a hurry” to reduce borrowing costs lower than their current level of between 4.25 per cent and 4.5 per cent. In a hearing dominated by Democrats’ concerns over the Trump administration’s gutting of the Consumer Financial Protection Bureau and Republican claims that many right-leaning Americans are being debanked owing to their political leanings, Powell refused to be drawn on what the economic consequences of the president’s actions might be. “It really does remain to be seen what tariff policies would be implemented. It would be unwise to speculate when we really don’t know. We see proposals, but it’s so hard to say what will happen,” said Powell. “It’s really not just tariffs. It’s tariffs, immigration, fiscal policy and regulatory policy. We’ll try to make sense of it and do what’s right for monetary policy.” John Williams, president of the New York Fed, also on Tuesday signalled rate-setters would need to wait and see how economic conditions evolved before deciding whether to cut rates. While borrowing costs were still “modestly restrictive”, Williams said the outlook was “highly uncertain, particularly around potential fiscal, trade, immigration and regulatory policies”. More