White House Official: Tariffs Have Limited Impact on Inflation, Interest Rates May Return to Pre-Pandemic Levels

Caixin, May 20, 2025 (Edited by Xia Junxiong) – Stephen Mullin, Chairman of the White House Council of Economic Advisers, stated that tariff hikes will not have a sustained impact on U.S. inflation and predicted that interest rates could return to pre-COVID levels.

In a media interview, Mullin said, “Imports account for only 14% of the U.S. economy, so their ability to affect inflation is limited. Our administration has been implementing tariff measures since taking office, but they have not yet had a truly significant impact on inflation.”

He noted that consumer price index (CPI) data over the past three months shows inflation increases below expectations. In April, core CPI (excluding volatile items like food and energy) rose 2.8% year-over-year, marking the lowest level since March 2021.

Despite recent data indicating easing price pressures, the Federal Reserve remains cautious about further rate cuts, with policymakers holding rates steady for three consecutive meetings. Fed officials are concerned that the Trump administration’s tariff policies could elevate inflation.

At a press conference following this month’s rate meeting, Fed Chairman Jerome Powell stated that the impact of tariffs “may be temporary” but did not rule out the possibility of longer-lasting effects.

Mullin emphasized that U.S. importers have “flexibility” to either manufacture domestically or source goods from “countries friendlier to the U.S.,” thereby maintaining control.

“In the short term, prices and economic activity may fluctuate, much like financial markets? Yes, that’s possible,” Mullin said. “But in the long term, we have bargaining power, which allows us to pass tariff costs onto other countries.”

He also noted that inflationary pressures from the Biden administration’s “reckless” spending are subsiding, creating room for interest rate reductions.

Mullin added, “We will achieve lower interest rates by expanding the supply side.” He highlighted policies such as deregulation and Republican tax cut plans.

“If we can bring interest rates back to pre-COVID levels, the fiscal deficit as a percentage of GDP could drop by another percentage point,” he said. In recent years, this ratio has consistently exceeded 6%.