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If credibility is degraded, then tariff induced cost-push shocks are much less prone to manifest as one-off value degree will increase, and extra prone to spur a bout of inflation.
Determine 1: Bordo-Siklos measure of Fed inflation credibility (blue). Calculation assumes CPI goal per PCE goal is 2.45%. September commentary is preliminary. Mild orange shading denotes Trump administrations. Orange dashed line at “Liberation Day”. NBER outlined peak-to-trough recession dates shaded grey. Supply: BLS, NBER, creator’s calculations.
From Bloomberg:
“To the extent that the Fed’s choice this week is seen as a capitulation to political stress, a brand new layer of danger is being added to US monetary markets and the greenback,” [ David Kelly, chief global strategist at JPMorgan Asset Management] stated.
See additionally Griffin-Kashyap in WSJ.
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