In a recent statement, Federal Reserve official Musalem came down on one side of the Boomer vs. Millennial inflation debate, siding with the idea that tariffs raise inflation. In that piece, Bernstein touted the relatively small role tariffs played in today’s historically high inflation. The result of this effect is much smaller than most had expected. Musalem explains that tariffs are responsible for about a tenth of today’s inflation. That would mean something else is causing the significant price increases we’ve observed the last several months.
Musalem’s comments really do underscore the crisis we’re in economically right now. We expect inflation to remain high for at least the next two to three quarters. Today’s U.S. inflation forecast cautions consumers and businesses alike to expect continuing price inflation in the near future. Surprisingly, the biggest forces behind these pressures may have little to do with tariffs. The Federal Reserve has been closely monitoring economic indicators and adjusting monetary policy to address inflationary trends, but Musalem’s comments highlight a need for a broader understanding of the underlying causes.
The muted impact of tariffs on inflation challenges earlier assumptions that the imposition of tariffs would lead to significant price hikes across various sectors. Indeed, many economists recently predicted that tariffs would increase inflation. Their thinking was that when businesses had to absorb the new costs, they would just raise prices on consumers. Yet new evidence indicates that this connection isn’t as strong as once thought.
Musalem cautioned that tariffs playing a role is just one piece of the inflation puzzle. His point was that they represent a small fraction of the overall picture. Supply chain disruptions, worker shortages, and changes in global demand have all become major factors in increased inflation. These factors are more important than ever before. These factors have further skewed the economic landscape and made it more challenging for policymakers to identify specific drivers of current inflation.
As the Federal Reserve continues to address these challenges, it will continue to pursue its dual mandate of long-run price stability and maximum sustainable economic growth. Musalem’s reflections offer a more nuanced approach. He asks that stakeholders take a closer look at the multifaceted nature of inflation rather than just scapegoating tariffs. This incremental approach serves the Fed’s broader agenda. It prioritizes addressing inflation with targeted shifts in monetary policy, not through tariffs.
Moving forward, economists have predicted a consistently high inflation rate for the foreseeable future. Musalem cautioned that this might continue for two or three more quarters, raising worries among consumers and businesses on both ends. With prices continuing to rise, Americans are asking for how much longer this inflation will last. Americans have a right to know what actions they can take to mitigate its effects.