The Fed’s Very Blunt Instrument Prompts a Look at Tariffs
Author: Greg Valliere
June 15, 2022
EDITORS TELL REPORTERS — you must explain what the Fed rate hikes mean for ordinary Americans. So the narrative will intensify: today’s Fed move will mean higher loan rates, a shaky housing industry, and a softening of the labor market. This is what an incumbent president wants?
NOT ONLY IS IT UNCLEAR whether inflation will plummet any time soon (energy and food prices are likely to stay elevated), but the rate hikes will hit many Americans in their most vulnerable asset: their home values, as surging mortgage rates ultimately cool home prices.
THE REELING BIDEN ADMINISTRATION faces another anxiety: the Fed wants the labor market to cool, so slowing of job growth now seems inevitable. We’ll go from a decrease of hiring to actual layoffs in the next few months. Again — is this what an unabashedly pro-labor president wants?
WITH THE FED DELIBERATELY ATTEMPTING TO SLOW THE ECONOMY, Biden officials are grasping for straws. This morning’s New York Times has a fascinating article on the possibility of lifting some tariffs, even some that have been imposed on China. Lawrence Summers and many business executives believe this would shave a few tenths of a percent off the inflation rate.
BUT PRO-LABOR DEMOCRATS ARE OPPOSED: They point out that China has yet to live up to the commitments it made as part of the U.S.-China trade deal that Donald Trump negotiated.
SOME U.S. OFFICIALS think a tariff deal could make progress, but Biden’s political advisers caution that it he cuts a deal with China ahead of the U.S. election, there could be a political pushback against him as being “soft on China.” And controversy would persist over Hunter Biden’s deals with Beijing.
THERE COULD BE SOME EASING OF TARIFFS WITH countries other than China, but would deals actually reduce inflation much more than a fraction? “I want to make clear, I honestly don’t think tariff policy is a panacea with respect to inflation,” Treasury Secretary Janet Yellen said recently.
THUS THE ONLY MAJOR INFLATION WEAPON available right now is aggressive monetary policy, and Yellen is correct, it’s no panacea. Like all bitter medicine, the aggressive Fed rate hikes will be difficult to swallow — as the detractors begin to howl, starting this afternoon.
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LAST NIGHT’S ELECTIONS: Well, if you’re a South Carolina Republican who advocates Donald Trump’s impeachment, you’re going to lose your GOP primary. No surprise there last night.
BUT THERE WERE SEVERAL OTHER ELECTIONS in which Republicans won based on their assertion that the 2020 election was stolen. That’s a problem for the party nationally, and House Speaker Kevin McCarthy seems incapable of unifying the factions.
THERE WAS ONE PIECE OF VERY GOOD NEWS FOR REPUBLICANS last night: They won a special House election in south Texas, still another sign that the Democrats are in real trouble among Hispanic voters.
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