Good question. "Price level shift" means the rate of change of price level ("inflation") rises then falls back to trend. It doesn't refer to a later decline in the price level, or negative rate of change ("deflation").
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Generally speaking, tariffs raise the price level but do not lead to large and sustained increases in inflation. But that can change depending on a bunch of factors, and may not be true for the US economy in the current context. It's the *baseline* assumption, not the only possible outcome.
aug 1, 2025, 12:28 pm • 43 2 • view
Right. Assuming a one time tariff increase you have higher Y/Y inflation rates for one year bc of one big monthly jump in the CPI, all other things equal. Of course that disregards second round effects, like highe input prices for imports which can then add to inflation from domestic manuf etc
aug 1, 2025, 12:32 pm • 1 0 • view
Since inflation is a rate of change, for tariffs to drive ongoing inflation you'd need them to not only exist but steadily increase over time, which seems unlikely given the last 300 years of economics and trade policy. Now to take a big sip of coffee and see who the president is
aug 1, 2025, 1:20 pm • 2 0 • view
(Not a criticism of your explanation, to be clear, more of a laugh-so-I-don't-cry thing)
aug 1, 2025, 1:20 pm • 1 0 • view
Couldn't you argue tariffs/trade wars cause supply chain constraints/shocks which could contribute to inflationary pressure -- much in the same way the supply shocks during COVID contributed to the current inflationary regime.
aug 1, 2025, 3:04 pm • 0 0 • view
yes you could argue that!
aug 1, 2025, 3:10 pm • 1 0 • view
Forgot to post earlier but yes this was her dissent to a 50 bps cut in September of 2024. www.federalreserve.gov/newsevents/s... "Inflation remains above our 2 percent goal, as core personal consumption expenditures prices are still rising faster than 2.5 percent from 12 months earlier."
aug 1, 2025, 1:16 pm • 53 5 • view
aug 1, 2025, 1:18 pm • 4 0 • view
Eh, not convincing enough. Balance of risks on inflation side of things doesn’t suggest tariffs will be just a one-time thing.
aug 1, 2025, 1:20 pm • 1 0 • view
there was something awhile back that the fed based policy on bank of japan but fucked up bc difference in culture
aug 1, 2025, 12:29 pm • 0 0 • view
something to do with the savings rate
aug 1, 2025, 12:30 pm • 0 0 • view
I’m not an economist. My thinking is that “expectations” are psychological and the fact that minds are primed by recent inflation means that a rise in price levels is more likely to give rise to sustained inflation expectations. Surely there’s research on this?
aug 1, 2025, 12:40 pm • 0 0 • view
That's probably true when tariffs are targeted to specific industries or countries but the current situation is... uh... not that
aug 1, 2025, 1:23 pm • 3 0 • view
we have significant tariffs impacting pretty much every aspect of trade that will filter through the economy over time so I think it's not clear what kind of long term price impact it will have
aug 1, 2025, 1:25 pm • 3 0 • view
No doom loop of wages chasing prices? Or the lack of viable openings in a labor cutting time mitigates enough?
aug 1, 2025, 2:16 pm • 0 0 • view
"Tariffs are price level increases and Fed should look through them" This is literally insane. If tariffs cause one year of 10% inflation, everyone is *permanently* 10% worse off (ceteris paribus). Surely the Fed should target 2% "on average", so the one-time price level increase matters.
aug 1, 2025, 12:47 pm • 1 0 • view
Got it. So a short term acceleration of the curve, then returning to the same, positive slope, albeit at a higher than expected y-value.
aug 1, 2025, 12:35 pm • 0 0 • view
Best of luck to the poor sot who has to develop messaging around the distinction between the price of things going up and "inflation."
aug 1, 2025, 1:43 pm • 2 0 • view
Neil Dutta makes the point that tariffs are just a tax and that should colour what the long term implications are. Still grappling with that. How those price increases propagate is so unknown, and how they impact expectation so unclear, so we just have no idea which forces will dominate
aug 1, 2025, 12:29 pm • 7 0 • view
The logic that says tariffs will be a one time price shift sounds a lot to me like “inflation is transitory”.
aug 1, 2025, 12:50 pm • 1 0 • view
and that's why the Fed isn't cutting! they're worried about the same thing!
aug 1, 2025, 12:50 pm • 4 0 • view
Me 🤜🤛 jpow
aug 1, 2025, 12:51 pm • 3 0 • view
Makes strong assumptions on no wage increases which the higher rates helps ensure dont happen.
aug 1, 2025, 12:35 pm • 0 0 • view
iirc everyone was pretty chill the last time we had inflation that leveled off
aug 1, 2025, 12:37 pm • 1 0 • view