Written by Bryan Lutz, Editor at Dollarcollapse.com:
This week, Fed Chair Jerome Powell announced that federal fund interest rates(FFR) will stay the same.
No changes.
Because, he admits, “we don’t know” what comes next.
According to Powell, Trump’s tariffs are the big, beautiful, unpredictable problem NOT the underlying fundamentals of the economy.
And the mainstream media backs him up.
The Wall Street Journal reports:
The Fed Waits Out the Tariff Economy
“Federal Reserve Chair Jerome Powell projected confidence when he insisted the central bank was in a good position to handle whatever the economy does next—all while repeatedly acknowledging the Fed has little idea what’s actually coming.
The Fed is trying to see how the dust will settle from the aftereffects of President Trump’s April 2 “Liberation Day” tariff announcements, among other policy changes.
Most economists expect tariffs to lift prices over the coming months, and that is a worry for the Fed because officials still don’t feel as if they completely vanquished inflation after a three-year-long fight.
“We haven’t been through a situation like this, and I think we have to be humble about our ability to forecast it,” Powell said.
Inflation has eased recently, but tariff effects loom. The job market shows hints of softness, though unemployment remains low at 4.2%…
…The timing for rate cuts “could come quickly. It could not come quickly,” Powell said. “We feel like we’re going to learn a great deal more over the summer on tariffs.”
The fact is, tariffs are only the perceived variable. What really matters are the fundamentals underlying the economy.
That’s the baseline to measure a healthy economic system.
Tariffs may create layoffs…
Then so did DOGE…
But the credibility of the currency is what really matters.
And that credibility simply isn’t based on how many widgets our factories can push out.
It has to do with debt, interest on that debt, and how much the cost of servicing that debt is eating up the economy, measuring in GDP.
And right now, the cost to service federal is skyrocketing…
Along with government spending deficits, each contribute to eating up the actual economy with more debt.
Here’s where deficit spending and the debt service cost look like against GDP.
And they rose for the same reasons I mentioned above, which protected against rising inflation and the cost of living.
My guess is that so long as the Fed can cover over keeping interest rates higher for longer, they will.
Up fast, and the down fast.
But now we are starting to plateau again.
The Fed is holding rates higher for longer than ever before, which indicates a growing concern overall.
One lever should ease the US economy into prosperity, while the other should stunt growth, except both levers don’t seem to working.
Here are the (conservative) Fed projections for next few years:
The idea of decreasing FFR keeps slowing down.
2 thoughts on "Fact Checking the Fed: Are Tariffs Really the Problem?"
I confess to financial ignorance. Can’t see how paying higher interest helps the GDP factor enhance currency credibility. Whereas lower interest rates will ease the Treasuries burden and, ergo, reduce the deficit and will allow GDP to focus on making widgets. Please re – explain like I’m 5 years old. Thank you.
Magic number: Over 37 trillion dollars in national debt. The Big, Beautiful elephant in the room no one wants to talk about. Everything else is just shiny distractions. Silver, gold, and toilet paper. Real hard assets (even some toilet paper!)