Recession Fears Rise Despite Better Inflation Data Amidst New Tariffs

Inflation Data and Fed Outlook

• 💡 Consumer Price Index (CPI) data came in better than expected this morning, with headline inflation at 0.2% and core inflation at 0.2%.
• 📈 While the year-over-year core inflation rate has decreased, it remains at 3.1%, which may not be comfortable enough for the Federal Reserve to consider cutting rates.
• ⚠️ Relief was seen in gas and airline fares, but increases in meat, poultry, fish, eggs, energy services, and used cars and trucks contributed to the overall numbers.

Impact of Tariffs on Inflation

• 🎯 Economists note that tariffs are expected to have an inflationary impact, though it is not yet fully reflected in the overall numbers.
• 🧩 Despite potential tariff impacts, the underlying disinflationary trend is believed to remain intact, offering a better starting point for the Fed.

Recession Prediction Challenges

• 📉 The failure of previous recession indicators, such as the inverted yield curve, means forecasters are operating with less certainty.
• ⚡ Recessions are typically driven by the demand side of the economy, while tariffs primarily affect the supply side, making them an unusual source of recession.
• ❓ Predicting recessions is difficult due to exogenous shocks – unexpected external events that the economy cannot easily adapt to.

Tariff Policy and Economic Impact

• ⚠️ The chaotic and disruptive nature of recent tariff implementations is a significant concern, impacting market stability.
• 💰 Research suggests that while tariffs might save some jobs in protected industries (like steel), they can lead to greater job losses in industries that use those materials.
• 📊 There is a lack of clear White House economic estimates regarding the job creation, costs, and losses associated with these major policy changes.
• 📉 The implementation and subsequent removal of tariffs on specific countries, like Canada, highlight a lack of a well-thought-out, consistent economic policy.