The high inflation has taken a new debate on how to respond to President Trump's radical plan, which will sort the global economy through tariffs, and whether old playbooks will still be applied. It leads to a question.
On Saturday, Trump imposes 25 % tariffs on imports from Mexico and Canada, and has been preparing for more 10 % tariffs on Chinese products. The movement occurs shortly after the threat of the government's demands of accepting immigrants who have been expelled abroad, and then imposing a large tariff on Colombia.
Trump's candidate, Commercial Division and Trading, said, Howard Lutonic, on Wednesday, said he supported the “full” tariff on the whole country.
The amount of trade policy proposals is to sow uncertainty about what to expect from the Central Bank, in order to make the Fed's already tricky work even more difficult and to work at the normal level at a normal level. Masu.
Customs duties are widely seen that economists and policy proprieters are likely to raise the price at least for US companies and consumers, and focus on growth over time. It complicates the way to move forward in the Fed, as well as Trump's large -scale expulsion, sudden tax reduction, and reduced deregulation decrease.
It's not clear to come next. Central Bank officials will analyze old and new playbooks to formulate an appropriate strategy.
“The Fed is intended to follow the monetary policy manual that instructs one -time price -like shift, such as tariffs, but we are worried that the reality is more troublesome.” Former top economic advisor.
“It is difficult to distinguish between inflation pressure with different data from this year, such as tariffs, immigrants, deficits, and non -political factors,” he said.
The Fed worked on many of these problems during Trump's first term. By 2018, the United States imposed severe tariffs on China and took retaliation measures for US products. The trade war has overturned the supply chain and reduced companies nationwide. U.S. importers have absorbed a lot of costs, but consumers have also paid more to specific products.
Transferred products of the Fed Conference from that period indicate that the authorities are primarily concerned that they are more likely to be caused by the sudden fall of business emotions and the growth caused by investment pullbacks.
The idea was that the price pressure was more permanent, and the FR B did not need to respond at a higher price unless there were signs that households and companies were starting to expect more inflation. 。
The view was notified in the middle of 2019 that the Fed's decision was made to reduce interest rates by 0.75 % to reduce interest rates.
Richard Clarida, a former vice -chairman of the Fed, who was involved in the formulation of central banks at the time, defended the decision. He said the inflation at the time was less than 2 % of the Central Bank's goal. Also, as the company turned globally, the potential knock on growth may have been considerable.
“I didn't know what the reaction was,” he said in an interview if the Fed did not do it.
As Powell acknowledged by a reporter at a press conference this week, today's situation was no longer the same. The worst inflation shock heritage in decades is still approaching. Interest rates that have risen over 5 % to keep rapid inflation remain higher than the pre -school level. The price of food and other staple foods has not risen so rapidly, but continues to rise.
At the same time, it has been proven that the economy is very resilient, even at high interest rates.
As a result, the Fed was reduced in ratio in 2024 and then in the holding pattern, and policy proppons are waiting for the “true progress of inflation or the weakness of the labor market”.
Importantly, the expectations of future inflation between households and companies are more or less suppressed, but there are early signs that can change. According to recent surveys by Michigan University, consumers have begun to hinder future prices as a result of ratchet -ratting tariffs. Some say they are planning to buy products in advance to ahead of the expected policy changes.
Another survey conducted in December and January revealed that consumers have already raised their purchases and stockpiling in anticipation of future prices.
“I am quite aware of the fact that American consumers will ultimately have the largest share of tariffs due to the rise in consumption prices,” he said. Economist, Michael Weber, states.
As expected, the survey also shows that the employer expects customs duties to give customers. Weber said that it might be easy because consumers are already expecting the results.
Weber said, “it will make the federal preparation system more complicated,” said Weber. If consumers predict a faster price rise, companies are more likely to raise prices. In fact, it is a self -realistic prophecy.
If Trump adopted a step -up approach to the introduction of tariffs, the problem could be even more prominent, and German Bank's US economist, Matthew Lutzettei, warned.
“It may be helpful for consumers and companies to adjust,” he said. “But I think it's complicated with Fed's photos, because it doesn't mean that it's not a single price level shock, so the price level that can be more risky for inflation expectations. It's a shock.
However, there is a reason to think that the old approach is completely meaningless. Earlier this month, one governor, Christopher J. Waller, said that he would not expect tariffs to “a serious or sustainable effect on inflation”, confronting the further call for this year's interest rate reduction.
Currently in Pimco stated that if the dollar, especially the expected dollar, would be able to offset some of the inflation pressure. Also, if a foreign company is forced to reduce costs to maintain competitiveness, it may also provide a boost to US importers. In retaliation from other countries, demand for exports in the United States is slow and dragged by growth. In summary, he said, “The old playbook you see through it may work.”
Powell also said at a press conference this week, saying that the sort of trade relationships could help to slow the effects of inflation, and said that “the footprints of trade have changed.” Focusing on the manufacturing industry elsewhere.
Of course, the economist warns that the universal tariffs of the Trump administration will challenge their views.
In this uncertainty, the scope of the possible result of the Fed policy setting is very large. Luzzetti's team believes that inflation will force the Central Bank to force all the reductions in 2025.
Yelena shuryatyeva, a US economist of the Council Committee, shortened the pause, and the Fed picked up in the second half of the year, and eventually the tariffs could “affect growth, so 0.75 % points are 0.75 percent points. I think it will be a major method.
Former FRB Economist Seth Carpenter, currently in Morgan Stanley, predicts that the Fedb will be reduced in March and June as Trump's policy has begun to appear in economic data.
“The resulting constellation is really difficult,” he said. In particular, he said that other policies such as the deportation of immigrants would be considered.
“Both have several inflation effects, both have a negative impact on growth, so the Fed is trying to get into this troublesome binding about how to react.” I said. “Eventually, in our predictions, negative growth has won, and in 2026 we can get much slower growth.”
Ben Casselman has contributed to the report.
