Bloomberg Surveillance Inflation and Fed Independence
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Jul 17, 2025 Frances Donald, Chief Economist at RBC, dives into the intricacies of the US labor market and the vital issue of Fed independence. She examines how political pressures influence the Federal Reserve's decision-making, particularly regarding interest rates. Donald discusses the impact of inflation on lower-income households and highlights alarming shifts in consumer behavior, including affluent shoppers seeking discount retailers. The conversation also touches on the potential for disinflation and its implications for economic strategies.
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Tax Cuts and Growth Dynamics
- Tax cuts that incentivize business investment can stimulate economic growth.
- Structural reforms like housing, permitting, and immigration policy matter more than deficit-financed tax cuts.
Fed Independence Risks
- The U.S. Federal Reserve's independence is at risk under political pressure.
- Attacking the Fed risks increasing inflation expectations and long-term interest rate premiums.
Tariffs as Tax and Distortion
- Tariffs act as taxes that distort supply chains but are not inherently inflationary.
- Due to the dollar's movements and intermediate goods imports, tariffs also tax exports indirectly.