Online Reporter
The impact of President Donald Trump’s tariffs on consumer prices is just getting started, according to research by Goldman Sachs Group, adding more uncertainty to a Treasury market that has been gripped by shifting bets on the pace of interest rate cuts.
US companies have so far taken the bulk of the hit from Trump’s tariffs but the burden will increasingly be passed on to consumers as companies hike prices, economists including Jan Hatzius wrote in a note. Consumers in the US have absorbed an estimated 22 percent of tariff costs through June, but their share will rise to 67 percent if the latest tariffs follow the pattern of levies in previous years, they wrote.
The net result: faster inflation. The core personal consumer expenditure index, one of the Federal Reserve’s favourite measures of inflation, will hit 3,2 percent year-on-year in December, according to the Goldman analysts.
They said underlying inflation net of tariffs would be 2,4 percent. The rate was 2,8 percent in June.
The report adds weight to a widespread view among economists that Trump’s sweeping tariffs will fuel inflation at a time when Fed policy has become a hot topic not just for bond traders but even for the president himself.
Trump has broken convention by publicly calling for the Federal Reserve to cut rates, suggesting Fed Chair Jerome Powell should resign and adding an ally — at least temporarily — to the monetary policy committee.
Bond traders are now looking ahead to Tuesday’s inflation data for clues on how fast the Fed can cut. Treasury 10-year yields rose by around seven basis points last week but fell during European trading hours on Monday.
Traders are pricing in a more than 80 percent chance of a rate cut at the Fed’s next meeting in September, but the uncertain impact of tariffs on inflation clouds the prospect of more easing in the months to come. — Bloomberg
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