New economic data shows that Trump's Tariffs are already a significant drag on the U.S. economy. The news is grim:
U.S. Consumer Confidence is Plummeting: Every month, the University of Michigan surveys how consumers and businesses think about the economy. Today's release was . . . not good. The index fell to 67.8 from 71.1 last month, a drop of more than 4 percent.
Joanne Hsu, the director of the survey, made clear that Trump's Tariffs are to blame, as consumers believe that the new taxes will cause prices to rise. Even Republicans are pessimistic:
Consumer sentiment fell for the second straight month, dropping about 5% to reach its lowest reading since July 2024. The decrease was pervasive, with Republicans, Independents, and Democrats all posting sentiment declines from January, along with consumers across age and wealth groups. Furthermore, all five index components deteriorated this month, led by a 12% slide in buying conditions for durables, in part due to a perception that it may be too late to avoid the negative impact of tariff policy. Expectations for personal finances sank about 6% from last month, again seen across all political affiliations, reaching its lowest value since October 2023. Many consumers appear worried that high inflation will return within the next year. Interviews for this release concluded on February 4.
Companies Are Forecasting Higher Prices, Lower Earnings: The popular shoemaker Skechers reported that it faces "several headwinds and certainties," which is corporate-speak for "we will sell less stuff and make less money." The company largely blamed Trump's Tariffs. Today, its stock price fell by more than 10 percent.
The Fed is Pausing Interest Rate Cuts: Higher inflation means higher interest rates, as the Federal Reserve Board will try to slow the economy to bring down prices. Trump's Tariffs complicate the Fed's job. Persistently higher inflation means that the Fed can't cut interest rates and might even force it to raise them. The Fed is worried about Trump's Tariffs:
Fed officials have already begun to consider potential changes in trade policy when determining their outlook for the economy: "What we can do is what we have done, which is study up on this and look at historical experience, read the literature," Powell said of tariffs. "And we will have to see how it goes."
Powell spoke before today's consumer sentiment survey was released. If consumers believe higher prices will be the norm, the Fed will continue to pause or even raise interest rates.
Today's Job Report: Is Stagflation on the Way? Today's job report showed a deceleration in hiring. Employers added jobs, but at a far lower level than expected. CNN's headline is a good summary: "Jobs report shows a hiring slowdown as companies are acting like 'they're in a recession.'"
Making any pronouncements based on a single jobs report is a fool's errand, but today's news highlights the risk of stagflation—rising unemployment and higher inflation.
Here's a plausible scenario: The combination of Trump's Tariffs and forced deportations raises prices, forcing the Fed to raise interest rates and causing massive job losses. Some parts of the economy, such as agriculture, could face substantial labor shortages, which increase prices in conjunction with the Trump Tariffs. Other sectors sensitive to interest rates (automobiles, housing) will lay off workers.
Nobody knows the economy's future, but today's news makes this possibility of stagflation far more likely.
The Trump Economy: Higher prices, fewer jobs.
In other words, FAFO.
