President Donald Trump's trade war could reverse the influential factors that have helped to reduce inflation over several decades. Donald Kohn, a former vice chairman of the Federal Reserve, expressed concerns that the disinflation trends of the 1980s, 1990s, and 2000s may be disrupted due to the recent trade policies.

The announcement of 25% tariffs on auto imports by Trump led to a drop in the dollar and European stocks. There are fears among investors that the resulting increase in prices due to tariffs might obstruct the Federal Reserve's ability to lower interest rates.

Inflation in the U.S. significantly slowed down since the early 1980s, largely due to aggressive actions taken by the Federal Reserve during Paul Volcker's tenure. Experts have also recognized globalization as a stabilizing factor in price levels over the subsequent years.

Kohn, a former Fed veteran, pointed out that the current trade policies pose challenges and potential supply shocks that could impact inflation trends. The shift towards potentially adverse conditions may force the Fed to make tough decisions.

The adoption of numeric inflation targets and central bank independence are acknowledged for sustaining low inflation rates, except during the post-pandemic period when forecast errors resulted in significant overshoots.

Kohn highlighted the Fed's new hurdles in managing high budget deficits and the pressure from President Trump to reduce interest rates. He emphasized that political influences on the Federal Reserve remain a concern, despite Trump's statement that he wouldn't dismiss the current Fed chair.