Fed’s Tariff Study Fails to Prove Inflation Rise
Analysis questions the Fed’s claim that tariffs caused a 2.9% inflation spike, highlighting methodological flaws.
2 min read
The Federal Reserve’s recent study on the impact of tariffs on inflation has sparked debate over its methodology and conclusions. The New York Fed’s paper by Mary Amiti and colleagues claims tariffs pushed up consumer prices by 2.9 percentage points. However, critics argue the study’s findings are misleading and do not support the conclusion that tariffs significantly contributed to overall inflation.
Study’s Limitations Under Scrutiny
The paper’s sample covers only 20% of the consumer basket, translating to a contribution of roughly six-tenths of a percentage point to overall prices. This is far less than the 2.9 percentage point figure often cited in media reports. Moreover, the study excludes services, housing, and energy, which are major components of the consumer price index.
Over the period studied, overall and core inflation actually fell, which challenges the notion that tariffs drove inflation higher. The paper’s statistical method measures price changes for goods with greater tariff exposure relative to those with less, but it cannot isolate the economy-wide effects of tariffs. This is referred to as the “missing-intercept problem,” where the study treats relative price effects as absolute, which is unlikely to reflect real-world outcomes.
Complexities of Tariff Impact
Tariffs raise prices for certain goods, but this often comes at the expense of other spending. If a household buys a more expensive washing machine, it may reduce spending on other goods or services, potentially offsetting the price increase. The study fails to account for these interdependencies, making its conclusions questionable.
Furthermore, the Fed’s approach does not consider how monetary policy, tax policy, and consumer behavior might have shifted in response to tariffs. Jerome Powell and the Fed have explicitly stated they are concerned about the inflationary effects of tariffs, indicating that policy was tighter than it would have been without tariffs.
Methodological Concerns
While the paper is considered more robust than earlier Fed studies, it still leaves room for scrutiny. The researchers do not list the 67 goods categories included in their sample or their individual weights, making it difficult to assess the validity of their findings. Readers are left to trust the Fed’s methodology without full transparency.
Source: Breitbart
