The former Federal Reserve (Fed) Vice Chairman Michael Barr recently issued a serious warning about Trump's massive tariff policy. He clearly pointed out that these unprecedented tariff measures have a high likelihood of "boosting inflation, slowing economic growth, and even causing unemployment rates to rise" in the future, posing potential risks of stagflation (inflation and unemployment coexisting).
Trump has placed the Federal Reserve, which bears the dual mission of maintaining price stability and full employment, in an unprecedented policy dilemma. This article will delve into Barr's core perspectives.
Tariffs May Become a Breeding Ground for Inflation and Recession
According to Reuters news, Barr emphasized in his analysis that if the tariff policy is implemented, its scale and scope will be rare in modern economic history. Although the final form and exact impact of these policies remain uncertain, the economic risks are quite clear.
Barr believes that high tariffs may lead to severe global supply chain disruptions, thereby creating persistent upward pressure on inflation, as businesses need to invest significant time and capital to redesign their marketing networks and production lines, and these increased costs are likely to be ultimately passed on to consumers.
According to estimates from the Yale University Budget Lab, if tariff policies are implemented in 2025, the overall price level in the United States may rise by 2.9% in the short term. Even considering some alternative goods, prices may still rise by 1.7%, which means the annual purchasing power of each US household could be reduced by approximately $2,700.
Supply Chain Reorganization Challenges and Potential Unemployment Risks
The impact of tariffs on global supply chains is particularly worth noting. Businesses seeking new supply sources or adjusting production bases will undoubtedly need to invest significant time and resources.
Barr specifically emphasized that the disruption of supply chains could be most severe for small businesses. Many small enterprises provide irreplaceable specialized products or services, and high tariffs will undoubtedly increase their operating costs and potentially trigger a wave of bankruptcies, further exacerbating supply chain chaos. The depth of this impact can be compared to the dire situation faced by global supply chains during the early stages of the COVID-19 pandemic.
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