The direct impact of the strict tariff policies of US President Donald Trump is now beginning to appear on the country’s economy. The Consumer Price Index (CPI) has reached 2.9% level in August, which is the highest since January. This rate was 2.7% in July. Despite this rising inflation, many economists estimate that the Federal Reserve may cut interest rates next week due to the weakened job market.
According to the US Labor Department, the main reason for the increase in consumer inflation in August was cars, household items, and daily grocery prices. Especially, tomatoes and beef prices have increased rapidly. CPI also increased by 0.4% on monthly basis, which is much higher than 0.2% in July.
The direct effect of tariff
The Trump government has imposed a huge tax of 10% to 50% on imported goods since last month. The direct result of this is that clothes, household items and food items have become expensive. For example, 70% of tomatoes consumed in the United States come from Mexico, on which a 17% tariff was imposed in July. As a result, the price of tomatoes jumped 4.5% in August. Economist of banking group Beranberg, Akkan Bakiskan said, “Trump’s policies, tariffs and immigration rules are clearly visible in the data of inflation and this is directly impacting consumers’ purchase capacity.”
Job market recession
Along with inflation, the job market is also getting weaker. In August, only 22,000 new jobs were added, which is much less than estimated. The unemployment rate increased from 4.2% to 4.3%. The Labor Department has also admitted that the counting of about 9 lakh jobs was stated to be more in the data till March, which further increases the seriousness of the situation. In addition, the new claims for unemployment allowance last week reached 2.63 lakhs, the highest in the last four years. This suggests that the recession in the job market has been continuously deep.
Federal Reserve’s next step
Inflation may be above the target of 2% of the Federal Reserve, but the pressure on the fed has increased to reduce the interest rate in view of the weak job market and slow economy. Experts believe that Fed may cut interest rates by 0.25% next week. Ellen Gentler, a strategist at Morgan Stanley, said, “Inflation is still a part of the story. The real issue is a job market. This rate is determining the direction of deduction.”
If the fed rates reduce the rates, it can provide some relief to the American public. Things like home loan, car loan and credit cards will be cheaper, which will reduce the debt burden on people. However, due to Trump’s policies, everyday things will remain expensive, which will affect people’s pockets continuously.
