Fed's Goolsbee calls tariffs 'stagflationary'
thehill.com -- Friday, August 15, 2025, 12:58:53 PM Eastern Daylight Time
Categories: Economic Policy & Jobs, Trade Policy & Tariffs, Federal Legislation & Congress
Chicago Federal Reserve president Austan Goolsbee described President Trump's wide-ranging tariffs as "stagflationary" on Friday, expressing a mainline view of tariffs among central bankers that's prompted the Fed to maintain its pause on interest rate cuts, much to the frustration of the president.
"I think of tariffs as having a heavy stagflationary component," he said on the CNBC television network.
The term "stagflation" refers to the dreaded combination of rising prices and slowing growth, which aren't supposed to happen at the same time under normal economic conditions. Prices usually rise more quickly when the economy is expanding, and prices tend to fall when the economy is weaker.
Recent economic data has broken with the accustomed correlations, as many economists have regarded tariffs as a shock to economic supply. The consumer price index has ticked up to a 2.7-percent annual increase since Trump's tariffs were first announced in April, and wholesale inflation, taking out food and energy, increased in July at the fastest monthly pace since 2022.
Meanwhile, the job market has sputtered, adding a total of just 106,000 jobs since May, well below the 80,000 to 100,000 jobs needed every month to sustain regular workforce attrition.
Goolsbee distinguished "transitory" inflation coming from tariffs from inflation that the Fed needs to be "responding to." He mentioned secondary effects like "wage-price spirals" -- positive feedback loops between increased unit labor costs and higher prices.
"It's going to be raising the cost of production for domestic manufacturing and others, and that a lot of times ... [takes] time to wind its way through the economy," he said.
Tariffs are taxes on foreign goods and services. They're directly paid by American importers, but they can ultimately be borne by importers, exporters, manufacturers, wholesalers, retailers or by consumers in the form of price increases.
They can have complex effects on the economy too, reducing demand for specific goods and causing companies to alter their supply chains. The costs can be taken out of margins or passed along in the value chain. Businesses can also change their production schedules to maintain ratios between costs and markup. Total U.S. capacity utilization has ticked down slightly since February, though it's still humming around 77 percent.
Revenues from customs duties, which are mostly tariffs, topped $100 billion earlier this summer for the first time during a fiscal year. Duties were $23 billion in May, $27 billion in June, and $28 billion in July. The Congressional Budget Office estimated earlier this year that tariff revenues, including their debt-service effects, would reduce federal deficits by $3 trillion over the next decade.
While Goolsbee stressed Friday the stagflationary concerns about tariffs that Fed Chair Jerome Powell has also frequently discussed, not all members of the Fed's interest rate-setting committee share his views.
During the Fed's July meeting, two governors dissented from the majority opinion to pause rates for the first time in thirty years. Governors Christopher Waller and Michelle Bowman both thought rates should be lowered by a quarter percent.
The dissents followed a relentless pressure campaign from the White House on the Federal Reserve that saw Fed Governor Adriana Kugler resign from the board earlier this month. She was replaced by White House Council of Economic Advisers chair Stephen Miran, who is likely to add more pressure on the Fed to lower interest rates in keeping with Trump's demands.
Futures markets were predicting a quarter-point rate cut in September with 91 percent probability on Friday.
Sign Our PetitionThe remarks by Austan Goolsbee, President of the Chicago Federal Reserve, regarding the stagflationary aspects of tariffs introduced during the Trump administration are a critical reminder of the multifaceted impact that trade policies can have on the economy. Goolsbee's characterization of tariffs as a "shock to economic supply" underscores the precarious balance policymakers must navigate, particularly in an era where inflation and economic growth seem to defy traditional economic expectations. The implications of these tariffs are not merely academic; they resonate deeply with ongoing social struggles and the lived experiences of American workers and consumers.
Historically, tariffs have often been wielded as tools of economic protectionism, aiming to shield domestic industries from foreign competition. However, the reality is that these protective measures can lead to unintended consequences, particularly in today's interconnected global economy. The rise of stagflation—a scenario where inflation and unemployment coexist—harks back to the 1970s when oil shocks and poor economic policies led to a similar crisis. The lessons from that era are crucial as they remind us that tariffs can inflate prices for consumers while simultaneously stifling job growth, a double-edged sword that does little to support the working class.
As Goolsbee noted, the recent uptick in consumer prices can be traced back to these tariffs, complicating the Federal Reserve's monetary policy decisions. The Fed's hesitation to lower interest rates reflects a broader concern that reducing costs of borrowing could further exacerbate inflationary pressures triggered by tariffs. This predicament reveals a stark truth: while policymakers may intend to protect American jobs and industries, the reality may instead result in higher costs for everyday consumers, particularly those in marginalized communities who are hit hardest by rising prices. This is a vital point for advocates of equitable economic policies to emphasize—protectionism must be coupled with a clear strategy for supporting the most vulnerable segments of society.
In addition to the economic implications, tariffs can also be seen as symptomatic of a broader political landscape that prioritizes short-term gains over sustainable economic growth. The $100 billion in tariff revenues might seem impressive at first glance, but this figure cannot obscure the larger societal costs incurred through reduced consumer purchasing power and potential job losses in industries reliant on imported goods. The Congressional Budget Office's estimate of a $3 trillion reduction in federal deficits over the next decade, due in part to tariffs, begs the question: at what cost? These figures should prompt a critical examination of fiscal policies that prioritize revenue generation through punitive measures rather than investing in long-term job creation and economic equity.
Finally, the dialogue surrounding tariffs and their impact on the economy is a microcosm of broader societal struggles over who benefits from economic policy. As Goolsbee pointed out, the inflation caused by tariffs can lead to wage-price spirals that disproportionately affect low- and middle-income workers. The need for comprehensive economic reforms is evident—policies must not only address inflationary pressures but also promote a fair distribution of wealth and opportunity. This is particularly important in the context of rising economic inequality and the stagnation of wages for many American workers.
In conclusion, the conversation initiated by Goolsbee is an essential one that extends beyond economic theory into the realm of social justice. As advocates for equitable policies, it is crucial to engage in discussions that hold policymakers accountable for the real-world impacts of their decisions. Whether through the lens of economic theory or social equity, the analysis of tariffs presents an opportunity to push for a more just and sustainable economic framework that genuinely prioritizes the well-being of all citizens, particularly those most affected by economic upheaval.
Austan Goolsbee's recent characterization of tariffs as "stagflationary" presents a crucial opportunity for a thoughtful examination of the economic landscape shaped by trade policies, particularly those enacted during the Trump administration. By framing tariffs as a significant factor in the current economic malaise—a situation marked by rising prices coupled with stagnating growth—Goolsbee underscores a reality that challenges the simplistic notion that tariffs serve as a protective measure for American jobs and industries. Understanding the complexity of tariffs and their broader economic implications allows us to engage in meaningful discussions about their efficacy and the real costs they impose on the American populace.
Historically, the United States has oscillated between protectionist policies and free trade agreements, influenced by varying economic ideologies and political agendas. The Smoot-Hawley Tariff of 1930 is a cautionary tale, illustrating how high tariffs can exacerbate economic downturns by stifling trade and leading to retaliatory measures from other countries. Today, the consequences of tariffs are evident in the rising consumer price index, which has increased by 2.7% since the implementation of tariffs in 2018. This inflationary pressure is particularly burdensome for low- and middle-income households, who are disproportionately affected by price increases in essential goods. Engaging right-wing counterparts in discussions about the historical context of tariffs can illuminate the potential pitfalls of current policies, fostering a nuanced debate around economic strategy.
Moreover, Goolsbee’s warning about the potential for “wage-price spirals” highlights the interconnectedness of wages, production costs, and inflation. The stagnation in job growth—only 106,000 jobs added since May—points to a fragile labor market that is struggling to recover. By emphasizing this stagnation and the associated economic anxiety, we can advocate for policies that prioritize job creation and wage growth over punitive tariffs. Conversations with right-wing advocates can focus on the need for comprehensive economic policies that address the root causes of wage stagnation, such as promoting fair labor practices and supporting infrastructure investments that create sustainable jobs.
In light of the challenges presented by tariffs, there are concrete actions that Americans can take to advocate for a more equitable trade policy. Grassroots organizing can help elevate awareness of the negative impacts of tariffs on everyday consumers and small businesses. Engaging with local representatives and pushing for transparent discussions about trade policies can create pressure for reforms that prioritize the interests of workers over short-term political gains. Participating in community forums and utilizing social media platforms to spread information and mobilize support can amplify voices advocating for a trade policy that is centered on economic justice and sustainability.
Finally, educating ourselves and others about the broader implications of tariffs and trade policies is paramount. By arming ourselves with data and historical examples, we can engage effectively with individuals who may support tariffs without fully understanding their consequences. Sharing insights from economic experts and studies that examine the long-term effects of tariffs on both domestic industries and consumer prices can foster understanding and encourage critical thinking about economic policies. By reframing the conversation around tariffs as not merely a political tool, but as a significant factor in shaping the economic well-being of American families, we can build a coalition for change that transcends partisan lines.
In summary, the discussion surrounding tariffs and their stagflationary effects, as articulated by Austan Goolsbee, provides a vital opportunity for advocacy and education. By leveraging historical context, emphasizing the real economic impacts on workers and consumers, and taking proactive steps to engage in dialogue about trade policies, we can work toward a more equitable economic framework that benefits all Americans. The time is ripe for a critical reassessment of our trade policies, one that prioritizes long-term economic stability and social welfare over short-term political expediency.
The article raises important concerns regarding tariffs, their economic implications, and the broader impact on the job market and consumer prices. Here are some detailed actions that individuals can take to address the issues presented:
### Personal Actions to Take
1. **Educate Yourself and Others** - Stay informed about tariffs and their effects on the economy. Share articles, research, and reports with friends, family, and community members to raise awareness about the implications of tariff policies.
2. **Support Local Businesses** - Buy from local and domestic producers to reduce dependency on imported goods affected by tariffs. This can help mitigate some of the negative effects of tariffs on the economy and support local jobs.
3. **Advocate for Policy Change** - Write to your elected officials to express your concerns about the impact of tariffs on the economy, jobs, and consumer prices. Encourage them to consider the broader implications of their trade policies.
### Specific Actions and How to Engage
1. **Petitions** - **Sign and Share Petitions**: Look for petitions on platforms such as Change.org or MoveOn.org that address trade policies and tariffs. Share these petitions on social media to gather more support. - Example Petition: Search for petitions addressing the reversal of specific tariffs or advocating for more equitable trade policies.
2. **Contact Elected Officials** - **Who to Write**: Contact your U.S. Senators and Representatives. Use the following resources to find their contact information: - **[GovTrack.us](https://www.govtrack.us/)**: Find your representatives and their contact info. - **[Contacting Congress](https://www.congress.gov/contact-us)**: Get email addresses and mailing addresses for your representatives.
- **What to Say**: When writing, express your concerns clearly. Here’s a template: ``` Subject: Concern Regarding Tariff Policies
Dear [Official’s Name],
I am writing to express my concern regarding the ongoing impact of tariffs on our economy. As highlighted by Chicago Federal Reserve President Austan Goolsbee, these tariffs contribute to stagflation, increasing prices while slowing job growth.
I urge you to reconsider current tariff policies and work towards solutions that promote fair trade without negatively impacting consumers and the job market. It is crucial to support policies that foster economic growth and protect working-class families.
Thank you for your attention to this important matter.
Sincerely, [Your Name] [Your Address] [Your Email] ```
3. **Participate in Community Forums** - Attend town hall meetings or community forums to discuss economic policies with local leaders. Bring up the issues related to tariffs and their impact on the community.
4. **Engage with Advocacy Groups** - Join organizations that focus on economic justice and fair trade practices. Collaborate on campaigns that challenge harmful tariff policies. - Example Groups: - **Public Citizen** (info@citizen.org) - **Trade Justice Coalition** (info@tradejustice.org)
5. **Utilize Social Media** - Use platforms like Twitter, Facebook, and Instagram to raise awareness about the impacts of tariffs. Share insightful articles and create posts that encourage others to take action.
6. **Support Research and Education Initiatives** - Contribute to or volunteer with organizations that conduct research on economic policies and their social impacts. Promote educational initiatives that inform the public about the complexities of trade and tariffs.
By taking these actions, individuals can actively engage in the discourse surrounding tariffs and work towards a more equitable economic environment. Each of these steps contributes to a collective effort to influence policy and protect the interests of consumers and workers.