Fed's Daly: US tariffs on Chinese imports could help push inflation closer to 2%

Author: Greg Michalowski | Category: Central Banks

Fed's Daly speaks

Fed's Daly is on the wires saying:
  • US tariffs on Chinese imports could help push inflation closer to 2%
Now that is good news for inflation isn't it?

Not really.  You would kinda hope that consumer purchasing power would not be pushed lower by a tax/tariff on imports.  Moreover, it will make policy decisions harder for the Fed. Hence the recent shift in tone from the Fed, that they will tolerate hotter inflation.  They have too as part of it may be the rise in the cost of imports (that may or may not be a one time hike higher). 

Meanwhile, the Trump administration is also  funneling some of the "revenue from China tariffs" to farms to a total of $16B.  

The reality is, the importers in the US pay the tariffs to the US treasury. They can funnel that money to consumers which increases the inflation that Fed's Daly talks about.  Some of the gains in the US budget deficit (lower defiict)  from the tariffs paid by importers (and consumers) are going to the farmers because they have been targeted by China in retaliation for the US tariffs.  

Of course, it is hard to calculate the impact on growth. But if growth falls (less money in consumers pockets), tax revenues fall too and the budget deficit could go higher.  

The good news is if there is trade deal, US growth could go higher (assuming China opens up markets, stops sucking business from US companies because of IP stealing, and US companies become more competitive overall).   That is what is hoped at least.  

It is complicated calculus for sure, and what makes it even harder, is monitoring compliance. However, if it all works, there can be global benefits.

For now though, tariffs may lead to higher inflation as per Fed's Daly. 

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