Hi everyone,
I’ve been studying economics in the news, particularly Trump’s tariff policies, and something has been puzzling me.
I’ve noticed that Trump is imposing tariffs (which raise prices) while there’s also discussion about potential interest rate cuts.
This made me wonder:
Could the strategy be:
1. Impose tariffs → deliberately raise prices first
2. Then cut interest rates later
3. Since prices are already elevated from tariffs, the rate cut won’t cause prices to surge too excessively?
Basically, using tariffs as a “buffer” or “cushion” against the inflationary effects of rate cuts.
My question: Is this a plausible policy strategy, or am I completely misunderstanding what’s happening?
Would love to hear your thoughts, especially if you have expertise in macro policy!
Could Trump’s tariffs be intentionally creating inflation to enable future rate cuts?
byu/Ok_Royal_1059 inAskEconomics
Posted by Ok_Royal_1059
1 Comment
You would generally expect central banks to *raise* interest rates when inflation increases. The central bank in the US is, so far, still independent, so tariffs causing inflation would lead to the central bank reacting with contractionary monetary policy, higher interest rates.
In any case it’s not clear why this would “cushion” inflation from rate cuts, it would just compound.
Also, the tariffs are so uncoordinated and ever changing that it’s difficult to discern any sort of coherent “strategy”. Even if we accept your premise as true for a second, you would do this by raising tariffs and keeping them there, not constantly flip flopping.