Understanding Tariff Driven Inflation
What They’re Not Telling You About Lower Interest Rates and Tariff-Driven Inflation
Between social media posts and podcasters, there’s excitement about the possibility that interest rates may be cut, even as tariff-driven inflation quietly reshapes the cost of living, potentially for years to come. The Trump administration continues to pressure Federal Reserve Chairman Jerome Powell to cut interest rates, even threatening to fire him, something he can’t do legally.
Yet, people seem convinced it’s a sign of economic strength. But before reaching a conclusion, you should start with a simple question: why?
Why are interest rates going down in the first place?
The answer isn’t comforting, and it is not a sign of a kick ass economy. Rates are dropping not because the economy is thriving, but because we’re trying to stave off something far worse: inflation, recession, and the looming threat of stagflation, that toxic mix of stagnant growth and rising prices.
Don’t go too far back: the coronavirus pandemic. Was the economy booming? No, the global economy was stopped in its tracks. To increase spending, the federal government dropped interest rates to basically zero, something we haven’t seen in this lifetime. Why, to increase spending. What was the result? A real estate boom occurred because it was far less expensive to own a home. Of course, the flip side is the artificially increased prices of homes.
Besides, if the Trump tariffs were truly making America wealthy again, the interest rates wouldn’t matter. They’d be a footnote in a booming economy. But we aren’t seeing a booming economy. We are seeing the opposite (unless you are the 1%).
The Race to Inflation Continues. Will the Fed Lower Interest Rates?
Consumer prices continue to climb. I recently broke down a list of grocery items affected by tariffs. And with the potential drop in interest rates, it’s a way to artificially stimulate spending just to keep the economy from flatlining. This isn’t a celebration. It’s a warning.
A Dangerous Precedent. Will it be Déjà vu All Over Again?
Let’s talk tariffs. If blanket tariffs were such a brilliant strategy, why haven’t we used them before? The idea sounds simple: slap a 100% tariff on every import and watch domestic wealth soar. Well, we’ve tried that. It was called the Great Depression. Those who forget their history….
Fast forward to today: Home Depot and Walmart just announced price hikes, and the grocery aisle isn’t far behind. These price hikes, $40 here, $10 there, add up fast. By year’s end, households could be facing $2,000 to $4,500 in additional costs, just to maintain the same standard of living.
Ask Yourself Why
If there is one thing I have learned, it is that people have a conclusory thought pattern. They go from A to C, skipping B. It’s easy to reach conclusions, but when people do that, they are easily manipulated. So the next time you hear that interest rates are falling, don’t just celebrate, but interrogate. You just have to ask yourself: why?
Rates are dropping because inflation is rising, and a tariff-driven economy isn’t a positive. Yes, there are many people online who say tariffs are great. Assuming they aren’t bots, the reality is that no credible economist or global financial firm agrees with that statement.
For reasons unknown, other than zero common sense, consumer goods are based on the pricing for the company to buy the product. For example, if it costs $5 to buy X, then the company has to sell X for more than $5 to the consumer to make a profit. So when the product imported goes up by X%, then the product is increased by X%, so that the cost is passed on to you. The result is simple: you just paid more for the product.
Besides, if tariffs were truly making us wealthier, we wouldn’t need to manipulate interest rates to keep spending afloat. Lower rates are a last-ditch effort to jumpstart an economy that’s already struggling with stagnant wages and declining consumer confidence.
So before you accept the headlines at face value, ask yourself: What’s the real cost of this “good news”?
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