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.
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
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
(Not a criticism of your explanation, to be clear, more of a laugh-so-I-don't-cry thing)
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.
yes you could argue that!
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."
Eh, not convincing enough. Balance of risks on inflation side of things doesn’t suggest tariffs will be just a one-time thing.
there was something awhile back that the fed based policy on bank of japan but fucked up bc difference in culture
something to do with the savings rate
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?
That's probably true when tariffs are targeted to specific industries or countries but the current situation is... uh... not that
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
No doom loop of wages chasing prices? Or the lack of viable openings in a labor cutting time mitigates enough?
"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.
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.
Best of luck to the poor sot who has to develop messaging around the distinction between the price of things going up and "inflation."
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
The logic that says tariffs will be a one time price shift sounds a lot to me like “inflation is transitory”.
and that's why the Fed isn't cutting! they're worried about the same thing!
Me 🤜🤛 jpow