The Price of Greatness

The Fed’s dual mandate of full employment and moderate inflation will face challenges this year. Goods inflation will exacerbate the persistent rise in housing costs as tariffs disrupt global trade. The Federal Reserve will face the challenge of managing a slowing economy and declining employment. Headline growth may appear stronger than underlying economic conditions, as an improving trade deficit masks weakening exports and consumer demand. Nevertheless, rising unemployment will pressure the Fed to cut interest rates, even as inflation remains above target. This move could reignite housing price increases and fuel further inflation. With monetary policy having limited influence over employment losses driven by trade wars, the risk of stagflation will loom large. The Fed will need politicians to reverse the economic turmoil of their own making.