Diane Swonk, Chief Economist, KPMG:
Well, what’s really important is that tariffs tend to be — historically, they’re a one and done, a bump-up and a one time increase in price levels.
But this doubling of tariffs, basically doubling from what we saw in June, the effective tariff rate, that is not only going to add to another increase in prices, which we’re only beginning to see the early signs of right now, but also the tariffs are so large that they also squeeze profit margins and that means cost-cutting or layoffs.
And so what we’re worried about is a sort of stagflationary kind of nature of these tariffs because they’re so large and they’re just unable to be completely absorbed by either firms themselves or completely passed on to consumers 100 percent.
We’re looking for inflation to pick up to about 3.5 percent by year-end and then stay elevated a little bit longer than we initially expected because of the sequential nature of these tariffs and the fact that we have had inflation running above the Fed’s target for the better part of more than four years.
And that’s important as well because it makes the risk of a more persistent bout of inflation much higher at the same time that we’re seeing the labor market start to show some fault lines and stagnating.
