US SC tariff verdict clouds Fed's rate path after a year of upheaval

The Supreme Court's ruling against a broad set of the Trump administration's tariffs raises fresh questions for Federal Reserve policymakers, who have spent the past year assessing how sharply higher import taxes might affect inflation and the broader economy.

 

Many Fed officials had recently gained confidence that last year's tariff-driven price increases would ease. Now, they face uncertainty over whether the process might be reversed or paused while the administration explores alternative ways to reimpose the same taxes under different legal authority.

 

All the while, the Fed is left guessing about the economic impact, complicating decisions on whether or when to resume cutting interest rates.

 

"Is there a requirement to pay back the firms that have paid in?...If so, that's a lot of disruption," Atlanta Fed President Raphael Bostic said in Birmingham, Alabama. "Does this cause businesses to revert back to old business models about where they are getting their supplies?...Will there be another vehicle to put all those tariffs in at the same level or are there constraints?"

 

The uncertainty was evident in interest rate futures markets, where traders wagered on the direction of borrowing costs. Markets fluctuated on Friday between bets that the Fed would cut rates in June or wait until July, reflecting the complications introduced by the Supreme Court ruling.

 

Questions remain about whether businesses will delay planned price increases, potentially reducing inflation, or postpone hiring and investment because of the uncertainty, as many did last year. Treasury Secretary Scott Bessent said the legal fight over refunds of the invalidated taxes could take "weeks, months, years" to resolve. Meanwhile, the administration plans to impose alternative import levies under what Bessent called well-tested authorities to fill the tariff gap left by the Supreme Court's 6-3 decision.

 

"No one should expect that the tariff revenues will go down," Bessent told the Economic Club of Dallas. Responding swiftly to the ruling, President Donald Trump announced an immediate new 10 per cent tariff on imports from all countries, in addition to existing levies.

 

If the new tariffs are essentially one-for-one replacements of the old IEEPA tariffs, St. Louis Fed President Alberto Musalem said his economic forecast would not change significantly. Still, he intends to speak directly with CEOs to understand how they plan to manage the transition.

 

"It is possible that as companies begin to think of how they're going to transition from paying IEEPA tariffs to paying a different kind of tariffs, that could introduce a period of uncertainty there for companies," Musalem told Fox Business Network.

 

For Dallas Fed President Lorie Logan, the ruling also brings added ambiguity. "It's something we'll be paying attention to, but I don't have any specific perspective," she said in New York.