Fed Thoughts: A Heavy Lift on Trade and Monetary Policy
Authors & Contributors
In our view, the Fed’s description of tariffs as posing a supply shock increasing inflation and damping aggregate demand is partly wrong, reflecting the limitations of a macro shop trying to incorporate micro interventions on trade.
We’ll examine some possible passthrough scenarios in addition to trying to predict how the Fed will react given the limited data it currently has.
We do not expect any drama or sweeping market consequences from the June Federal Open Market Committee meeting. The Federal Reserve (Fed) has essentially hunkered down and is awaiting a decisive move on tariff policy from the Trump Administration rather than on-again, off-again declarations.
And while the Fed is unlikely to institute policy changes, we take a moment to consider various passthrough scenarios, defined as the portion of input costs producers pass through to the final price, and how they may affect inflation and consumer demand.
