Introduction
When Donald Trump criticizes Federal Reserve (Fed) Chair Jerome Powell for not lowering interest rates as he desires, he finds support among his followers who also want to pay less for their credits.
Populist Rhetoric vs. Economic Reality
It’s relatively easy for a populist, irresponsible stance to point fingers at what is called here a technocrat who dared to spend on remodeling the very bank’s facilities.
Jerome Powell’s speech today at the Federal Reserve’s Economic Symposium in Jackson Hole, Wyoming, will be the most precise and likely accurate way to understand the trajectory of inflation and the US economy.
However, for Trump, what matters is his imagined scenario in the terms he wants to see and aims to achieve, regardless of the cost. This populist approach is accompanied by an authoritarian impulse.
The Inflation Indicator
There is an indicator that, for a majority, is more influential than Powell and more determinant than Trump’s wishes: the price tag when making purchases.
- What does Trump say? That his tariff policy won’t affect prices and, therefore, interest rates can be lowered by up to 175 basis points.
- What does Powell say? That the real impact of tariffs should be observed, and the Fed prioritizes price stability and maximum employment without haste.
- What do consumers see in supermarkets and department stores? They have seen a minor impact on prices so far, contrary to Trump’s initial expectations.
The reality is that Trump initially anticipated widespread high import taxes causing immediate effects on supply chains. However, the TACO (Trump Always Chickens Out) policy in tariffs has moderated this cost increase impact. Retailers maintained high inventories, allowing them to moderate price increases.
This phenomenon, where retailers anticipate imports of durable goods and many consumers rush to make purchases before tariff impact, cannot last forever.
Walmart, a leading discount retailer, not only reported annual profit growth but also raised its sales growth expectation for this fiscal year from 4.0% to 4.75%.
However, Walmart CEO Doug McMillon acknowledges that weekly costs are rising.
As summer ends, the bulk purchasing phase for the year-end sales peak begins. Here, retailers may have to absorb price increases to avoid affecting consumers.
While the TACO policy has temporarily contained prices, this situation is time-bound. Inventories are depleting, and supply chains are adjusting costs.
Just as retail executives now understand this, consumers will soon learn the same. The holiday shopping season will likely bring fewer gifts and reflect the consequences of Trump’s tariff decisions in consumers’ wallets.
