Consumers could soon feel the squeeze from a policy shift
American households may soon feel the effects of the Trump administration’s tariffs more directly through higher prices, according to Beth Hammack, the president and CEO of the Federal Reserve Bank of Cleveland.
In an interview with CBS News’ Kelly O’Grady, Hammack stated that businesses that have been absorbing the costs of the tariffs are nearing a breaking point and will likely pass those expenses on to consumers. She noted that while inflation has remained subdued so far this year, she believes the annual rate could reach 3%, a percentage point higher than the Fed’s 2% target.
The looming 'two-speed economy'
This potential rise in inflation comes at a time when many Americans are already struggling with the cost of living. A new poll by The Associated Press-NORC Center for Public Affairs Research found that half of Americans view grocery prices as a major source of stress, a concern that outweighs housing and health care costs.
Hammack described the US economy as operating at “two-speed.” She said, “The top part of the income spectrum is doing incredibly well. They’re feeling a lot of excitement about the stock market, how their 401(k)s are doing, and they’re feeling flush with cash.”
However, she added that lower-income households are facing significant economic challenges. As an example, she shared, “I hear individuals trading down, they go to the supermarket and they can’t buy ground beef. They’re buying hot dogs, they’re looking at their $400 emergency fund, and it’s not able to pay for a new air conditioner or the car repairs that it used to be able to pay for.”
A delicate balancing act for the Fed
The Federal Reserve, which has a dual mandate to maintain low unemployment and stable prices, is facing a difficult situation. The central bank recently held its benchmark interest rate steady, with Fed chairman Jerome Powell citing the risk of higher inflation due to the tariffs. Hammack echoed this concern, saying that the price increases from the tariffs could become a “more persistent inflationary problem.”
Economists also generally believe that consumers will eventually bear the brunt of the tariff’s impact.
“I think the administration is going to have a really hard time trying to convince the American people that some of the price increases they’re seeing are because of other factors not related to the tariffs,” Alex Durante, senior economist of the Tax Foundation, noted in an interview with CBC News.
This comes as the labor market is showing signs of weakness, with July’s jobs report indicating that employers hired fewer workers than expected.
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