The Federal Reserve has been avoiding questions since the election about whether President-elect Donald Trump’s stated tariffs will cause prices to go up and inflation to rise in the U.S.
Fed officials have said they don’t want to talk about policies that don’t exist yet.
Brian Bethune, an economist at Boston College, thinks that the Fed is ignoring evidence from the tariffs that the Biden government just put in place.
Bethune said, “This year is a clear example of how tariffs cause prices to rise.”
Canada’s federal and provincial governments have helped to support the production of softwood lumber, which is what is usually used to build single-family homes. The U.S. and Canada have always had a disagreement about this matter. During his first term, Trump put taxes on lumber.
In February of last year, the Biden White House said that the tax rate on softwood lumber from Canada would almost double. In August, the taxes were put in place.
The top economist for the National Association of Home Builders, Robert Dietz, said that the cost of lumber has gone up 13.1% in the last eight weeks.
The NAHB was against the lumber tariffs because they said they would make homes less affordable and cause building costs to go up.
Even though the price of lumber doesn’t change U.S. inflation by itself, Bethune said that prices for building materials are going up when they should be going down because the number of homes being built has dropped sharply.
At CIBC, Avery Shenfeld is the chief economist. He said that Trump’s trade policy is “the major wildcard” in any prediction for 2025.
He said he understood why the Federal Reserve is waiting for more information before making any decisions about how tariffs will affect inflation and what that means for Fed monetary policy.
First, Shenfeld said, the U.S. job market might not be tight enough for the initial price pressure from tariffs to lead to a longer-lasting rise in prices.
He also said that some of the effects of tariffs might be cancelled out by trade wars that hurt growth and make it harder for people to spend money.
