Trump's Tariffs on Consumer prices is Just Getting Started: Goldman Sachs Group
The impact of President Donald Trump’s tariffs on consumer prices is just getting started, according to research by Goldman Sachs Group Inc., adding more uncertainty to a Treasury market that has been gripped by shifting bets on the pace of interest rate cuts.
US firms have primarily borne the majority of the impact from Trump’s tariffs, but the burden will progressively shift to consumers as businesses increase prices, economists such as Jan Hatzius mentioned in a report. Consumers in the US have experienced about 22 percent of tariff expenses through June, but their portion is expected to increase to 67 percent if the new tariffs conform to the trends of previous years, they noted.
The overall outcome: quicker inflation. The essential personal consumer expenditure index, a favored measure of inflation by the Federal Reserve, is projected to reach 3.2 percent year-on-year in December, as stated by analysts from Goldman. They stated that the underlying inflation excluding tariffs would be 2.4 percent. The percentage stood at 2.8 percent in June.
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The report reinforces a common belief among economists that Trump’s extensive tariffs will drive inflation during a period when Fed policy is a major concern not only for bond traders but also for the president.
Trump has breached tradition by openly urging the Federal Reserve to lower rates, proposing that Fed Chair Jerome Powell should step down, and including an ally — even if just for a while — on the monetary policy committee.
Bond traders are now anticipating Tuesday’s inflation data for insights on the speed at which the Fed can reduce rates. Treasury 10-year yields increased by roughly seven basis points last week but declined during Monday's European trading session.
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Traders are factoring in over an 80 percent likelihood of a rate cut at the Fed’s upcoming meeting in September, but the possibility of further easing in the future is complicated by the unpredictable effects of tariffs.