Fed Minutes Warn of Inflation Surge: Consumers to Bear the Cost

Federal Reserve minutes of an FOMC meeting indicate a significant shift in the position of Fed. Although recent employment figures indicate that job growth has been steadily declining down to an average of 35,000 new jobs per month in the last three months (compared to 123,000 in 2006), the Fed decided to keep interest rates where they are (4.50%). By arguing that a premature reduction of interest rates would risk stoking up inflation at a time that the prices of services and goods are already rising at sharp rates official were trying to argue against an early reduction in rate of interest.

Price Pressures as a Result of the Tariffs

The Trump administration and its tariff policy is one of the greatest causes of this inflationary trend, since the overall baseline tariff rate on all imports has been 10%, with country-specific additional tariffs as well. National Bureau of Economic Research reports have also suggested that far more often than not, the inflationary pressure caused by new tariffs manifests itself only after a delay period during which firms sell stocks that they already had in hand. That slack is showing signs of reversing, as July figures indicated dramatic gains in apparel, furniture, and footwear, three areas that are strongly dependent on international supply chains.

Inflation Preference to Employment: A Relocation of Methodology

The implications are dire as far as U.S. households are concerned. Others such as Nike and Adidas have already foreshadowed price increases to cover the costs of the increased production expenses, with the level of grocery bills as well as service costs also steadily rising middle-income families, who tend to blame the Fed policy posture as well as tariff initiatives, which allow them to drive up the price of essential goods.