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New tariff policy is one of the biggest economic shocks in decades
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March PCE 12-month inflation likely 2.3%; core PCE likely 2.7%
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In Q1:
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Economy grew modestly
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Labor market remained solid
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Inflation was too high but showing slow improvement
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Monetary policy is meaningfully restricting economic activity
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Hopes underlying inflation will continue to moderate
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Inflation expectations remain anchored
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Expects inflation to return to a more moderate level in 2026
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Partial tariff suspensions increase uncertainty and complicate timing
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Policy outlook is highly uncertain — Fed should remain flexible
Tariff scenarios and implications:
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Smaller tariff scenario:
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Fed could be more patient
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Rate cuts could happen in the latter half of the year
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10% average tariff scenario:
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Inflation could peak at 3%
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25% average tariff scenario:
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Inflation could peak near 5%
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Drag on output and employment could be long-lasting
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Unemployment could rise to 5%
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Believes higher inflation from tariffs will be temporary
This article was written by Greg Michalowski at www.forexlive.com.
