Opinion: Inflation fears surge to their highest levels since ‘liberation day’ as Fed cuts rates

[Logophile]

The bond market’s five-year inflation expectations are now the highest since March, just before President Trump’s ill-fated “liberation day” tariff snafu sent the markets and investor confidence into a tailspin.
Even the latest economic projections produced by the Federal Reserve itself don’t pretend to see inflation coming back down to the official 2% target before 2028.
All of this is very ominous indeed for retirees and those who live on fixed incomes from their investments. Fixed incomes, including bonds, pensions and annuities, are most at risk from sustained inflation —although really high inflation, such as America saw in the 1970s, is bad for pretty much everything.
There are multiple reasons why the market may fear sustained inflation. Powell himself warned that, contrary to claims by some, the new tariffs being imposed on imports are not being paid by the exporting countries. They are instead being paid by the U.S. companies buying the imports, such as the retailers buying products from places like China to put on their shelves. And, he warned, those American companies will almost certainly be soon passing those costs on to you, the American consumer.
In the short term, at least, that’s the very definition of inflation: It raises prices.
Powell hinted at the risks of 1970s-style “stagflation,” a toxic combination of economic stagnation, high and rising unemployment, and persistent inflation. There were, he said, meaningful downside risks to the jobs market as well as upside risks to inflation.
But that isn’t all.
Inflation may also be the most obvious political solution to the massive and growing trajectory of the U.S. national debt — which private-sector economists, the Congressional Budget Office and the Government Accountability Office have all said is unsustainable. Inflation has been the escape clause for spendthrift governments for millennia. It benefits the borrower, and steals from the lender, by reducing the value of the dollars they get back.
And hovering over it all is the threat that the Federal Reserve itself is about to lose much of the independence from the executive branch that it has enjoyed since the 1980s. Stephen Miran, President Trump’s appointee to the board, bucked his colleagues to vote for a half-point cut. The president wants short-term rates, currently just above 4%, cut to 1% or even lower.
America has had a strong Federal Reserve, largely independent of politicians, since Paul Volcker took over as chairman in 1979. It was Volcker who was finally able to ignore the politicians and crush the inflation of the ‘70s by keeping short-term rates high enough for long enough to squeeze inflation out of the system.
Powell has consistently said he has taken that lesson to heart, and has been trying to do much the same thing in the past few years. President Trump has threatened to fire him, and is currently trying to fire Powell’s colleague Lisa Cook. (The excuse for the firing isn’t important, and looks increasingly absurd. This is about Fed independence.)
Bond investors may also fear the consequences of the recent turmoil at the U.S. Bureau of Labor Statistics — the official, supposedly nonpartisan agency that calculates the official inflation figures. President Trump fired the head of the agency last month after complaining about its figures.
All this uncertainty is making it increasingly difficult for retirees and those nearing retirement to plan their finances for their golden years. Meanwhile, it’s worth noting that winners of a Powerball jackpot are given the option of taking their money in 30 installments that rise each year by 5%. That, surely, offers plenty of cushion against inflation, unless America becomes like Venezuela.

Inflation fears surge to their highest levels since ‘liberation day’ as Fed cuts rates

The bond market is less confident than Jerome Powell.

www.marketwatch.com

There's a paywall so I copied the gist. I think the Fed has made a mistake in cutting interest rates. It seems to me Trump wants to radically lower interest rates to offset the tariff squeeze. He's putting us in a precarious position though, and Powell has to know it. The elephant in the room is of course, the federal debt, and it's - as said above - unsustainable. Neither party in recent years has addressed the economy in an adult fashion. At this point, I think we're in for stagflation, especially if Powell and friends slash rates again and/or the federal debt isn't seriously addressed. In the mean time, it's imperative that the federal reserve stays independent, or we definitely revisit the 70's. I've learned a lot from the economic contributors on DP so I'm hoping you'll weigh in

 

[Captain Adverse]

The bond market’s five-year inflation expectations are now the highest since March, just before President Trump’s ill-fated “liberation day” tariff snafu sent the markets and investor confidence into a tailspin.
Even the latest economic projections produced by the Federal Reserve itself don’t pretend to see inflation coming back down to the official 2% target before 2028.
All of this is very ominous indeed for retirees and those who live on fixed incomes from their investments. Fixed incomes, including bonds, pensions and annuities, are most at risk from sustained inflation —although really high inflation, such as America saw in the 1970s, is bad for pretty much everything.
There are multiple reasons why the market may fear sustained inflation. Powell himself warned that, contrary to claims by some, the new tariffs being imposed on imports are not being paid by the exporting countries. They are instead being paid by the U.S. companies buying the imports, such as the retailers buying products from places like China to put on their shelves. And, he warned, those American companies will almost certainly be soon passing those costs on to you, the American consumer.
In the short term, at least, that’s the very definition of inflation: It raises prices.
Powell hinted at the risks of 1970s-style “stagflation,” a toxic combination of economic stagnation, high and rising unemployment, and persistent inflation. There were, he said, meaningful downside risks to the jobs market as well as upside risks to inflation.
But that isn’t all.
Inflation may also be the most obvious political solution to the massive and growing trajectory of the U.S. national debt — which private-sector economists, the Congressional Budget Office and the Government Accountability Office have all said is unsustainable. Inflation has been the escape clause for spendthrift governments for millennia. It benefits the borrower, and steals from the lender, by reducing the value of the dollars they get back.
And hovering over it all is the threat that the Federal Reserve itself is about to lose much of the independence from the executive branch that it has enjoyed since the 1980s. Stephen Miran, President Trump’s appointee to the board, bucked his colleagues to vote for a half-point cut. The president wants short-term rates, currently just above 4%, cut to 1% or even lower...(shortened for space issues.)

I believe that the problem isn't Trump's tariffs so much as a recent lower Court freezing the President's ability to place, raise, or lower tariffs. Up until that bad ruling, Trump's manipulation of the tariffs was both bringing in money to reduce inflation and debt, but also reducing costs here in the USA. Just another example of Democrat controlled lower Courts seeking to undermine Trump's efforts by any means necessary.

 

[Callen]

I believe that the problem isn't Trump's tariffs so much as a recent lower Court freezing the President's ability to place, raise, or lower tariffs. Up until that bad ruling, Trump's manipulation of the tariffs was both bringing in money to reduce inflation and debt, but also reducing costs here in the USA.

Given it is American consumers and businesses that pay the tariffs, costs they never paid before, I'm not sure why you think it is reducing costs in the US. Tariffs are a national consumption tax and , given the traditional aversion to taxes in the US, it seems to me that increased taxes to supposedly lower costs is not a conservative principal.

 

[Logophile]

I believe that the problem isn't Trump's tariffs so much as a recent lower Court freezing the President's ability to place, raise, or lower tariffs. Up until that bad ruling, Trump's manipulation of the tariffs was both bringing in money to reduce inflation and debt, but also reducing costs here in the USA. Just another example of Democrat controlled lower Courts seeking to undermine Trump's efforts by any means necessary.

The tariffs were designed - I think - to give American companies equal footing abroad. That assumption was predicated on "encouraging" more equitable agreements when it came to Americans peddling their wares in foreign countries. Essentially, that's what we were told. The other reason I presume was to fill the coffers. We were told that, too. Trump needs to offset the burden of the tariffs and the impact of the tax cuts, and he thinks he can do it with low interest rates that will stimulate corporate investment and American spending. The problem is, we have a 36 trillion plus debt that is still sitting there during the "transition" with no attention paid to it at all. So the fed is still borrowing like no tomorrow and printing money. You may be right, that the lower courts have impeded the whole plan, but right now, we're headed toward stagflation unless that debt is addressed in earnest. We need political attention paid to it with at least a vocalized strategy by Trump to pay it down. Nobody seems to want to address that huge elephant in the room

 

[Kushinator]

, Trump's manipulation of the tariffs was both bringing in money to reduce inflation and debt, but also reducing costs here in the USA.

Tax increases on imports will reduce both the demand for imports and the consumption / production they facilitate.

Just another example of Democrat controlled lower Courts seeking to undermine Trump's efforts by any means necessary.

By all means, show the list of judges who ruled or retract your statement.

 

[AZRWinger]

Tax increases on imports will reduce both the demand for imports and the consumption / production they facilitate.

Yes, tariffs reduce demand for foreign goods dumped on the US market as well as providing incentives for foreign governments to remove their barriers to imports from the US.

By all means, show the list of judges who ruled or retract your statement.

The latest bit of judicial meddling in the President’s tariff management is by an appeals court.

"Six of the seven judges who ruled against the tariffs are appointees of Democratic presidents, while the seventh is an appointee of former President George H.W. Bush. Of the four judges who dissented, two were appointed by former President Obama and two by former President George W. Bush."

A federal appeals court ruled against Trump's tariffs. Here's what could happen next.

President Trump has claimed the authority to bypass Congress and impose sweeping tariffs, but a new ruling throws that in doubt.

www.cbsnews.com

 

[Callen]

Yes, tariffs reduce demand for foreign goods dumped on the US market as well as providing incentives for foreign governments to remove their barriers to imports from the US.

Applying a consumer tax to goods that either cannot be produced in the US or not in the quantities required is just plain dumb.

 

[uptower]

 

[Kushinator]

Yes, tariffs reduce demand for foreign goods dumped on the US market as well as providing incentives for foreign governments to remove their barriers to imports from the US.

Tariffs slow the economy. They are a tax increase on U.S. citizens one way or another.

The latest bit of judicial meddling in the President’s tariff management is by an appeals court.

"Six of the seven judges who ruled against the tariffs are appointees of Democratic presidents, while the seventh is an appointee of former President George H.W. Bush. Of the four judges who dissented, two were appointed by former President Obama and two by former President George W. Bush."

A Bush appointee ruled in unison with 6 other Obama appointees (two ruled against).

Tariffs are stupid.... People who support tariffs are stupid.

 

[AZRWinger]

Applying a consumer tax to goods that either cannot be produced in the US or not in the quantities required is just plain dumb.

What are these good which cannot be produced in the US? Be specific.

 

[Callen]

What are these good which cannot be produced in the US? Be specific.

bananas , coffee, raw materials such as lumber, aluminum and copper....remember I said in the quantities required. You could make jeans but you would have to make the denim, you could make sneakers but you would have to make the rubber etc

 

[AZRWinger]

bananas , coffee, raw materials such as lumber, aluminum and copper....remember I said in the quantities required. You could make jeans but you would have to make the denim, you could make sneakers but you would have to make the rubber etc

Remember you wrote "cannot make them in the US in quantities required". You don't list manufactured goods except for lumber. The total US trade deficit for agricultural products is estimated to be $47 billion in 2025. The total wood products trade deficit is just over $14 billion. The total US trade deficit in 2024 was a record $1.14 trillion.

Agricultural imports are directly influenced by US policies subsidizing biofuels production over food. Likewise, anti logging and mining zealotry has reduced domestic production. These are deliberate policy choices, not an inability to manufacture.