Hot inflation has increased the use of President Trump's plans to escalate his use of rates for the largest trading partners in the country, to risk consumer prices even higher consumer prices and to push back the prospects of the Federal Reserve that reduce interest rates.
New inflation data that were released this week showed the price pressure that is increasing. The unexpected jump in the consumer price index of January reflected in partly seasonal peculiarities that tend to pop up at the beginning of the year, but the increase was generally large enough to feed the new arrest on the prospects.
Mr. Trump was quick to point out fingers to his predecessor – an attack line that was later used by Karoline Leavitt, his press secretary, who called the latest inflation data a 'indictment against the mismanagement of the BIDEN administration of the inflation crisis and their lack of transparency , when tackling. “
But the imposition of rates at a time when inflation is not yet overcome is seen as a risky strategy, especially for a president who promised on the campaign track that he would lower prices on “Day 1.”
“The introduction of a large increase in the prices of imported goods can be a number of the inflatoire sintels that still glow new in the economy,” said Michael Strain, an economist at the American Enterprise Institute, a conservative think tank.
In the first weeks of Mr Trump in the White House, he has already placed an extra rate of 10 percent on all American imports from China and set 25 percent rates on the import of metal. He has also delivered the possibility to impose 25 percent rates on almost all goods from Canada and Mexico, although he has temporarily paused those taxes until March 4. In total, the measures will reach more than $ 1.3 trillion from the American import, and the president has said those rates for many other countries and industries, from copper to medicines, are in the making.
Mr Trump is expected to continue on Thursday and imposes what he calls 'mutual rates'. That would increase the taxes that the American charges should match – such as cars – to match what other countries impose on American products when those goods cross their boundaries.
The Trump administration gave no indications on Wednesday that it was preparing to change course about its economic strategy based on signs that high inflation continued to exist.
Kevin Hassett, the director of the National Economic Council of the White House, said on CNN that Mr. Trump's plans to lower the expenses, expand energy production and lower lower taxes.
That is an argument that was also done by Peter Navarro, the president's trade consultant. “These rates do not happen in a vacuum,” he said in an interview in his office at the end of January.
Mr Navarro said he expected that countries such as China, whose economy is dependent on buying their products from Americans, would respond to American rates by lowering their own prices. “Rates do not cause inflation when they are imposed by the largest market in the world,” he added.
The Chinese government will probably also devalue its currency, compensate for the consequences of the rates, making its goods cheaper abroad. Mr Navarro argued that rates would also lead to more investments in his own country in the United States, which increased the productivity of employees, which he said was “the best way to combat inflation”.
Stephen Moore, a former senior economic adviser from Mr Trump, acknowledged that the “inflation strap was not defeated”, but also suggested that the president's rates were unlikely that inflation in the context of his general tax and deregulation agenda would worsen . Although he expressed some skepticism about the merits of higher samples and aluminum rates, Mr. Moore said that he thought that the tariff threats were probably a negotiating strategy and that Mr. Trump would succeed in curbing inflation.
“If Trump just increased rates, it would probably have an inflational effect, but if you look at the entire agenda – further reduction of income tax, produce more energy, energy deregulating – in my opinion it will put it into a downward pressure on the prices , “Said Moore.
But many economists are more uncomfortable about the prospects.
Alan S. Blinder, a Princeton economist who previously served as vice chairman of the FED, warned that rates and massive deportations – a different cornerstone of Mr. Trump's economic agenda – form 'stagflatoire shocks'.
“They are inflationary, and they are anti-growth,” he said.
According to an analysis published by economists from the Federal Reserve Bank of Boston this month, an additional rate of 10 percent can add on the import from China and a rate of 25 percent on goods from Canada and Mexico to 0.8 percentage point to “Core” Inflation, a measure that removes fleeting food and energy prices.
The effects would be considerably greater if Mr Trump would follow his campaign promise to impose a universal rate, the economists warned. Core inflation could rise by a further 2.2 percentage points if a levy of 10 percent was imposed in the import of the rest of the world and the rates for Chinese import rose to 60 percent, their research showed.
Usually rates are seen as a policy that leads to only a one -off increase in prices that do not translate into sustainable higher inflation. But the actual impact depends on a number of factors, including how they are phased, as companies that pass on higher costs to consumers and, perhaps even more importantly, if those consumers change their spending patterns to take higher prices into account.
Raphael Bostic, chairman of the Federal Reserve Bank of Atlanta, said during a recent event that business leaders he had spoken expected to pass on higher costs to consumers “100 percent”.
“It's one thing to expect it – it's something else to do it, and so we'll actually have to see what's happening,” he said.
Lessons from Mr Trump's first trade war in 2018, Omair Sharif, founder of the Inflation Insights of the research agency, said that he expected higher costs to be associated with certain household articles that would also be passed on to consumers this time.
At the time, for example, the WA equipment index of the CPI jumped around 18 percent in three months after a rate of 20 percent was placed on large washing cross -mashes, which suggested Mr Sharif that “almost the entire rate went fast.”
“I would expect something similar,” he said.
Given the uncertainty about the inflation views and the policy of Mr Trump, the FED has chosen to limit further interest rate letings for the time being. The chairman of the Fed, Jerome H. Powell, told the legislators this week that the central bank wanted to see more progress that inflation was on their way to return to his target of 2 percent and that if the price pressure did not improve, the Fed “Policy Oncellation would maintain longer.”
That plan is contrary to Mr. Trump's wish to lower interest rates, which he repeated on Wednesday in a social media post. “The interest rates should be reduced, something that would go hand in hand with upcoming rates !!!”, he wrote.
Austan Goolsbee, president of the Federal Reserve Bank of Chicago, acknowledged that getting a signal from the inflation data will probably be more challenging as Mr Trump has policy that is expected to influence prices directly. That places the FED in an “uncomfortable situation of trying to distinguish which part of the price increase comes from one thing that we have to see through and what a sign of overheating is,” he said in an interview on Wednesday.
FED officials will also keep a close eye on to see if consumers start to change their expectations about future inflation in a substantive way – something Mr Goolsbee said would be 'a very alarming sign'.
Until now, the evidence is scarce that Americans have lost the confidence that inflation will fall over time. Yet the situation is loaded in view of the circumstances of recent years.
“We have just experienced the most radical inflation experience in the past 40 years,” says David Wilcox, a senior fellow at the Peterson Institute for International Economics and the director of US Economic Research at Bloomberg Economics who previously run the Fed research and statistics department. “The policy risks related to unfounded complacency on inflation must be much greater.”
