In a controversial statement, a top economic advisor to former President Donald Trump has called for the discipline of Federal Reserve economists who produced a report suggesting that US businesses and consumers have borne the brunt of the president's tariffs. The report, published by the New York Federal Reserve, found that 90% of the cost of increased tariffs was paid for by US companies and shoppers. Kevin Hassett, director of the National Economic Council, described the report as an 'embarrassment' and 'the worst paper I've ever seen in the history of the Federal Reserve system'. He argued that prices had fallen, inflation was lower, and 'real wages were up $1,400 on average last year, which means that consumers were made better off by the tariffs'. However, this claim has been challenged by other economic analyses, including one by the Kiel Institute for the World Economy, which found 'near-complete pass-through of tariffs to US import prices'. The National Bureau of Economic Research also found that the pass-through of tariffs was 'almost 100%', meaning the US, not the countries exporting goods to America, is paying for the increase in prices. This controversy comes at a time when the US central bank, which sets interest rates, has been under pressure from Trump to lower borrowing costs more aggressively. The Fed has been monitoring the effects of tariffs on inflation, and officials voted to hold interest rates steady at their January meeting, citing signs of stabilisation in the labour market. However, some analysts have warned that further progress toward the Fed's 2% inflation target could stall in the months ahead if companies start to pass on the costs of tariffs more fully to consumers. The minutes from the Fed's January meeting, released on Wednesday, underscored division among Fed officials as to the path forward for interest rates this year. Some even cautioned about a risk of rate hikes if inflationary pressures persist. This latest attack by the Trump administration on the Federal Reserve has shifted the focus from interest rates to the impact of tariffs on the economy. The Supreme Court could rule on the case as soon as this Friday, and the legal battle over Trump's trade strategy continues to unfold.
