This post is a condensed version of the Chris Giles on Central Banks newsletter. Premium subscribers can subscribe here to receive the newsletter every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters.
Recent data shows that US inflation stabilized in April, but the focus is on the anticipation of rising inflation in the US.
Amid discussions on the impact of Trump’s tariffs, the question arises: who will bear the burden of these tariffs? Let’s examine the early signs.
Business
While economists offer theoretical insights, it’s ultimately the companies that will determine price adjustments. Walmart’s CEO, Doug McMillon, acknowledged the unavoidable price hikes due to tariffs, triggering a response from Trump.
Following Walmart’s statement, Treasury Secretary Scott Bessent mentioned that the retail giant would absorb “some” of the tariffs, attempting to ease tensions.
The Philadelphia Fed’s recent survey indicates that companies are facing increased costs for supplies and subsequently raising prices.
Exporters to the US
Contrary to Trump’s expectations, data from the Bureau of Labor Statistics suggests that US import prices have slightly risen, indicating that the burden of tariffs is being passed along the domestic supply chain.
Notably, Chinese goods arriving at US ports have seen price reductions, but these are insufficient to offset the tariff increases.
Academics
Ongoing research on the tariff impact reveals that prices of goods from China are gradually increasing, extending beyond tariffed products. The evidence suggests that retailers are spreading the price hikes.
Officials
A recent Fed study challenges the notion that the US supply chain absorbs tariffs, indicating that prices have risen more than predicted, suggesting additional profit-taking.
Early data on the 2025 tariffs shows a 54% pass-through rate, implying that US supply chains initially absorb some tariffs.
Conclusion
The evidence points to a shared burden of tariffs, with domestic supply chains and consumers bearing the brunt. Trump’s assumption of external entities or business leaders covering the costs seems unfounded.
Key Takeaways
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The Fed plans to reduce staff levels by 10% to demonstrate responsible resource management.
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Chair Jay Powell’s speech at the Fed conference hinted at changes in monetary policy strategy.
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US consumer confidence is declining, signaling potential economic challenges.
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Belgium’s central bank governor shifts from a hawkish to a dovish stance in an FT interview.