Economist: The Federal Reserve Should Consider Cutting Interest Rates to Counteract the Negative Impact of New Tariffs

ChainCatcher reports that Boston College economics professor Brian Bethune states that Trump's tariff policy is the biggest shock to the U.S. economy since the Smoot-Hawley Tariff Act of 1930. Economists generally believe that the act exacerbated the Great Depression by encouraging countries to erect trade barriers, leading to a sharp decline in global economic activity. In response to the Trump administration's actions, Canada has announced retaliatory tariffs, and Mexico has stated it will announce countermeasures on Sunday. Bethune warns that the new tariffs will disrupt supply chains, putting American manufacturers operating internationally in a difficult position.

The direct impact of the new tariffs will be to suppress growth and drive up inflation, creating a "stagflation effect." The U.S. experienced a stagflation dilemma in the 1970s and 1980s, when economic stagnation coexisted with high inflation. Bethune suggests that the Federal Reserve should consider cutting interest rates to address the current situation.