Janet Yellen warns Donald Trump’s sweeping tariffs could ‘derail’ inflation progress

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US Treasury secretary Janet Yellen warned the incoming Donald Trump administration against imposing sweeping tariffs, saying they would lead to higher inflation.

Donald Trump, who is set to take office next month, has threatened steep tariffs on Canada, Mexico and China — important US trading partners.

Yellen said that while there was some value in those types of penalties to tackle “unfair trade practices”, the imposition of broad measures could have an “adverse impact on the competitiveness of some sectors of the US economy and could significantly raise costs to households”.

Those price pressures may be acute enough to “derail” the progress made in bringing inflation down after it surged in 2022 to a four-decade high from a combination of supply snarls and pent-up demand.

Trump has also hinted he should have a greater say in monetary policy, a move that would upend decades of Federal Reserve independence.

“I think it’s a mistake to become involved in commenting on the Fed and certainly taking steps to compromise its independence,” Yellen, who previously ran the central bank, said at an event hosted by The Wall Street Journal on Tuesday. “I believe it tends to undermine the confidence of financial markets and ultimately, of Americans in an important institution.”

While Trump has doubled down on the use of tariffs as a negotiating tool, he has softened his stance on the Fed. In an interview on Sunday with NBC News’s Meet the Press, he said he would not seek to remove chair Jay Powell before his term expires in May 2026.

Trump has limited legal recourse to do so anyway, but the threat itself sowed fears that the Fed could face a significant challenge over the next four years. Powell has pushed back on those concerns, saying earlier this month that his institution is protected by the “law of the land”.

Yellen also said she remained worried about the “fiscal sustainability” of the country, given the sharp rise in US sovereign debt.

“I am sorry that we haven’t made more progress,” she said. “I believe that the deficit needs to be brought down, especially now that we’re in an environment of higher interest rates.”

In an sign of these concerns, bond giant Pimco this week said it has become more hesitant to buy long-term US government debt given “sustainability questions” and the prospect of rising inflation under Trump.