At the end of the year, with all eyes on the impact of Mr. Trump's tariffs in the near future, let's take a look.
The tariffs imposed by President Trump during the previous administration were met with retaliation by trading partners, a combination that is likely to depress exports, real incomes and consumer spending. Against this historical backdrop, there is a good chance that new tariffs, if implemented, will lead to a downturn in economic momentum. And growth could pick up in 2026 if the initial impact of tariffs wears off and the full suite of Republican policy changes kicks in.
Without the tariffs, the job market would already be weakening. Wage growth was highly concentrated across industries, and labor force growth slowed sharply. Although the unemployment rate remains low, the number of permanent unemployed and the median duration of unemployment have clearly risen, trends that historically predate recessions.
On the other hand, the Fed's preferred measure of inflation was little changed over the past six months amid slow deflation in goods and still-firm service sector price pressures. Consumer-price inflation was higher than expected in November, but a deceleration in services inflation is also a good sign.
While the new tariffs may cause a temporary acceleration in inflation, I do not think the FOMC will be much affected by the change in inflation, but rather by the hit to GDP and employment growth caused by the tariffs.
At the end of the year, with all eyes on the impact of Mr. Trump's tariffs in the near future, let's take a look.
The tariffs imposed by President Trump during the previous administration were met with retaliation by trading partners, a combination that is likely to depress exports, real incomes and consumer spending. Against this historical backdrop, there is a good chance that new tariffs, if implemented, will lead to a downturn in economic momentum. And growth could pick up in 2026 if the initial impact of tariffs wears off and the full suite of Republican policy changes kicks in.
Without the tariffs, the job market would already be weakening. Wage growth was highly concentrated across industries, and labor force growth slowed sharply. Although the unemployment rate remains low, the number of permanent unemployed and the median duration of unemployment have clearly risen, trends that historically predate recessions.
On the other hand, the Fed's preferred measure of inflation was little changed over the past six months amid slow deflation in goods and still-firm service sector price pressures. Consumer-price inflation was higher than expected in November, but a deceleration in services inflation is also a good sign.
While the new tariffs may cause a temporary acceleration in inflation, I do not think the FOMC will be much affected by the change in inflation, but rather by the hit to GDP and employment growth caused by the tariffs.