Eric Rosengren on Trade Deals, Inflation, and Fed Policy Uncertainty

Trade Agreement Uncertainty

• 📌 Commerce Secretary Lutnick stated that tariff levels will not change, which is positive news for markets, but significant uncertainty remains.
• 💬 Tentative agreements have been reached with the UK and China, but the details of the China agreement are not yet known.
• 🌍 China is finding alternative markets in Southeast Asia to offset losses from US-bound exports, helping to insulate its economy.
• 🇺🇸 Similarly, US individuals and firms are seeking alternative sources to avoid high tariffs on Chinese goods.

Inflationary Impact of Tariffs

• ⚠️ Despite expectations, the May CPI report showed little evidence of tariffs impacting inflation in areas like autos and apparel.
• 📈 However, prices in the market are not instantaneous, and tariffs have increased steel and aluminum prices, which are expected to eventually flow through to final consumer prices.
• 🗓️ More evidence of price increases due to tariffs is anticipated over the summer months.

Federal Reserve Policy and Economic Outlook

• 📊 While there has been improvement on the inflation front, there is considerable uncertainty about the second half of the year.
• ⏳ Agreements are still needed with many countries beyond the UK and China, and potential issues could still arise with existing tentative agreements.
• ⚖️ A real trade agreement is highly detailed and takes time to negotiate, meaning we are in the early stages of understanding the full impact.
• 🧐 Court cases and other factors could also affect tariffs, suggesting the Fed should maintain a patient stance until more certainty emerges about future price trends.