Labor market fears grow
This has been quite the long “transition”.
The reason why it makes sense for an economist to support this cautious 25 basis point cut in part is that the inflation caused by tariffs is moderate. According to an October St Louis Fed analysis: "Over the June-August 2025 period, tariffs explain roughly 0.5 percentage points of headline PCE annualized inflation and around 0.4 percentage points of core PCE annualized inflation [of 2.8%]." (see https://www.stlouisfed.org/on-the-economy/2025/oct/how-tariffs-are-affecting-prices-2025#:~:text=Over%20the%20June%2DAugust%202025%20period%2C%20tariffs%20explain,explain%2010.9%25%20of%20headline%20PCE%20annual%20inflation.) Analysis by the San Francisco Fed suggests that while inflation in the first five months of 2025 were significantly a result of tariff effects on aggregate supply, since then the supply factor in inflation has been outpaced by demand effects; however, pass-through of tariff costs by suppliers has been slow, and so we may see inflation rise in 2026 (see https://economics.bmo.com/en/publications/detail/9e9142b5-607e-40ad-9716-9047612272f1/#:~:text=Surprisingly%2C%20the%20supply%2Ddriven%20shocks,emerge%20as%20public%20enemy%20%231.) So the Fed for now can focus on losses in the labor market.
I have heard that. Jerome Powell said something along those lines yesterday. That the tariff inflation was a one time rise in process. Another transitory inflation claim. I am cautious about that claim.
They are also cautious...
This has been quite the long “transition”.
The reason why it makes sense for an economist to support this cautious 25 basis point cut in part is that the inflation caused by tariffs is moderate. According to an October St Louis Fed analysis: "Over the June-August 2025 period, tariffs explain roughly 0.5 percentage points of headline PCE annualized inflation and around 0.4 percentage points of core PCE annualized inflation [of 2.8%]." (see https://www.stlouisfed.org/on-the-economy/2025/oct/how-tariffs-are-affecting-prices-2025#:~:text=Over%20the%20June%2DAugust%202025%20period%2C%20tariffs%20explain,explain%2010.9%25%20of%20headline%20PCE%20annual%20inflation.) Analysis by the San Francisco Fed suggests that while inflation in the first five months of 2025 were significantly a result of tariff effects on aggregate supply, since then the supply factor in inflation has been outpaced by demand effects; however, pass-through of tariff costs by suppliers has been slow, and so we may see inflation rise in 2026 (see https://economics.bmo.com/en/publications/detail/9e9142b5-607e-40ad-9716-9047612272f1/#:~:text=Surprisingly%2C%20the%20supply%2Ddriven%20shocks,emerge%20as%20public%20enemy%20%231.) So the Fed for now can focus on losses in the labor market.
I have heard that. Jerome Powell said something along those lines yesterday. That the tariff inflation was a one time rise in process. Another transitory inflation claim. I am cautious about that claim.
They are also cautious...