Trump Adviser Calls for Fed Economists to be ‘Disciplined’
One of Donald Trump’s senior economic advisers has expressed strong criticism of a Federal Reserve study that highlighted the negative impact of tariffs on U.S. businesses and consumers. National Economic Council Director Kevin Hassett stated that the economists involved should be disciplined for their findings, labeling the report as an embarrassment and the worst paper I’ve ever seen in the history of the Federal Reserve system.
Key Findings of the New York Federal Reserve Report
– Cost of Tariffs: The report found that in the past year, U.S. companies and consumers absorbed 90% of the increased costs associated with tariffs.
– Broader Economic Context: Hassett’s remarks come as the U.S. Supreme Court deliberates a legal challenge to Trump’s comprehensive global tariffs.
Despite Hassett’s critique, the report aligns with findings from other reputable organizations. For instance:
– Kiel Institute for the World Economy: An independent research firm in Germany reported near-complete pass-through of tariffs to U.S. import prices.
– National Bureau of Economic Research: Their analysis indicated that the pass-through of tariffs was almost 100%, revealing that U.S. consumers, not foreign exporters, are bearing the price increases.
The Impact of Tariffs on U.S. Economy
Hassett defended the administration’s stance, arguing that:
– Economic Indicators: Prices have decreased and inflation is lower; average real wages reportedly increased by $1,400 last year, suggesting that consumers are better off due to the tariffs.
– Disciplinary Actions: He implied that the economists behind the controversial paper should face consequences for producing analysis that he believes lacks academic rigor, stating, What they’ve done is they’ve put out a conclusion which has created a lot of news that’s highly partisan based on analysis that wouldn’t be accepted in a first-semester econ class.
Ongoing Legal and Economic Challenges
The debate surrounding tariffs is intensifying as small businesses and U.S. states challenge the Trump administration’s approach, alleging that the president has overstepped his authority. A ruling from the Supreme Court could arrive as soon as this Friday.
The U.S. central bank has faced pressure from Trump to lower borrowing costs more aggressively. Recently, federal prosecutors initiated a criminal investigation into testimony related to renovations at Federal Reserve buildings made by Chair Jerome Powell. The president has also targeted Fed Governor Lisa Cook for removal.
Inflation and Interest Rate Considerations
The Fed has been closely monitoring the influence of tariffs on inflation rates. At their recent meeting, they decided to maintain steady interest rates, citing stabilizing trends in the labor market. Notably:
– Inflation Cooling: The Department of Labor reported a decrease in inflation last month, attributed to lower prices for energy and used vehicles. This trend could support claims from Trump and others that the Fed might cut interest rates without igniting new inflationary pressures.
However, some analysts caution that progress towards the Fed’s 2% inflation target could falter if companies begin to fully pass the costs of tariffs onto consumers.
According to minutes from the Fed’s January meeting, there were clear divisions among officials regarding the future trajectory of interest rates, with some warning of potential rate hikes if inflationary pressures persist.
Conclusion
The ongoing conversation around tariffs and their implications for the U.S. economy continues to evolve. Hassett’s appeal for disciplined economists highlights the administration’s contentious relationship with the Federal Reserve. As the Supreme Court prepares to make a crucial decision and the Fed navigates inflation pressures, the impact of tariffs on U.S. consumers remains a significant focus. The interplay between these elements will likely shape economic policies in the months ahead.