Still early to assess tariff impact on economy, Fed report says

The Federal Reserve's latest Monetary Policy Report to Congress, released on Friday, said U.S. inflation is somewhat elevated and the labor market is in solid shape, but suggested that President Donald Trump's tariffs have likely only begun to be felt and repeated the central bank's view that it can wait for more clarity before taking action.

"The effects on U.S. consumer prices of the increase in import tariffs this year are highly uncertain, as trade policy continues to evolve, and it is still early to assess how consumers and firms will respond," said the report, which comes ahead of next week's testimony before Congress by Fed Chair Jerome Powell.

"Although the effects of tariffs cannot be observed directly in the official consumer price statistics, the pattern of net price changes among goods categories this year suggests that tariffs may have contributed to the recent upturn in goods inflation."

So far, though, the effect of tariffs has yet to show up in the official data for some goods, notably cars, though they have weighed on household and business sentiment.

The Monetary Policy Report, which comes twice yearly, generally summarizes topics already well known to Fed watchers and market participants.

On Wednesday, Fed policymakers wrapped up their rate-setting meeting with a decision to leave the policy rate in the 4.25%-4.50% range where it has been since December.

Central bankers want to see how the Trump administration's tariff and other policies affect inflation, the labor market, and the economy broadly before they adjust borrowing costs. Powell said he expects to see "meaningful" inflation in coming months, and policymakers generally see the economy slowing and the unemployment rate ticking up to 4.5% this year. 

The report said that despite uncertainty the financial system has been "resilient."

(Reporting by Ann Saphir; Editing by Andrea Ricci)