(WASHINGTON) — The U.S. government is set to release new inflation data on Wednesday, offering a fresh look at price increases little more than a week after the issue appeared to help former President Donald Trump win re-election.
Inflation has cooled dramatically since a peak of 9% attained in 2022, now hovering near the Federal Reserve’s target rate of 2%.
The slowdown of price increases has coincided with robust economic growth, establishing the twin conditions necessary for the U.S. to achieve a “soft landing.”
Economists expect prices to have risen 2.6% over the year ending in October. That figure would mark a slight uptick from the annual rate of 2.4% recorded during the previous month.
Still, policymakers at the Fed forecast that inflation will inch downward toward normal levels next year, and reach the central bank’s target rate in 2026, according to projections released in September.
The Fed cut interest rates by a quarter of a percentage point last week. The move came two months after the Fed cut its benchmark interest rate a half of a percentage point, dialing back its fight against inflation since it began in 2021.
The Fed is guided by a dual mandate to keep inflation under control and maximize employment. In theory, lower interest rates help stimulate economic activity and boost employment.
While the central bank’s concern about inflation has receded in recent months, a renewed focus on the labor market has risen to the fore. Employment has continued to grow but expansion has slowed in recent months. The unemployment rate has ticked up from 3.7% to 4.1% this year.
“We continue to be confident that with an appropriate recalibration of our policy stance, strength in the economy and labor market can be maintained with inflation moving sustainably down to 2%,” Fed Chair Jerome Powell said at a press conference in Washington, D.C., last week.
Even as inflation has slowed, that progress hasn’t reversed a leap in prices that dates back to the pandemic. Since President Joe Biden took office in 2021, consumer prices have skyrocketed more than 20%.
The price hikes appeared to fuel support for Trump in last week’s election. More than two-thirds of voters say the economy is in bad shape, according to the preliminary results of an ABC News exit poll.
However, Trump’s proposals of heightened tariffs and the mass deportation of undocumented immigrants could rekindle rapid price increases, some experts previously told ABC News.
When asked last week about the Fed’s potential response to Trump’s policies, Powell said the central bank would make its decisions based on how any policy changes could impact the economy.
“In the near term, the election will have no effects on our policy decisions,” Powell said on Thursday. “We don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy will be.”
“We don’t guess, we don’t speculate and we don’t assume,” Powell added.
(WASHINGTON) — Former President Donald Trump has raised few policies on the campaign trail more often than tariffs, which he says would rejuvenate manufacturing, create jobs, restrain immigration and help bankroll childcare, among other benefits.
In recent days, he has claimed another advantage of tariffs: They don’t require support from Congress. “I don’t need Congress, but they’ll approve it,” Trump said at a campaign event in Smithton, Pennsylvania, on Monday. “I’ll have the right to impose them myself if they don’t.”
Some economists have said higher tariffs could expand certain areas of U.S. manufacturing, but the policy risks rekindling inflation since importers would likely offset tax payments with higher prices. A potential trade war could hurt U.S. exporters and slow hiring, they said.
However, Trump is largely accurate in his description of the wide latitude enjoyed by the president in setting and implementing some tariffs, experts said. But, they added, Trump’s ambitious tariff agenda could test the limits of that authority, drawing court challenges and opposition from Congress with results that are difficult to predict.
“Will we get a reckoning if Trump gets elected and does what he says he wants to do?” Mary Lovely, a senior fellow at the Peterson Institute for International Economics who studies trade policy, told ABC News. “I think we’ll get one very quickly.”
In response to ABC News’ request for comment, a representative of the Republican National Committee pointed to remarks made by Trump at a campaign event in Georgia on Tuesday.
“The word tariff properly used is a beautiful word,” Trump said. “A lot of bad people didn’t like that word, but now they’re finding out I was right, and we will take in hundreds of billions of dollars into our Treasury and use that money to benefit the American citizens.”
“And it will not cause inflation, by the way. And you know, I took in from China hundreds of billions of dollars in taxes and tariffs, and I had no inflation. We didn’t have any inflation — 1.2% — we had essentially no inflation,” Trump added. (Inflation did not exceed 3% during Trump’s term in office. The pace of price increases fell to near-zero levels early in the COVID-19 pandemic before rebounding to about 1.3% at the end of his term, according to U.S. Bureau of Labor Statistics data.)
On the campaign trail, Trump has promised a sharp escalation of tariffs enacted during his first term. Trump has proposed tariffs of between 60% and 100% on Chinese goods. Envisioning a wide-reaching tariff policy, Trump has also proposed a tax as high as 20% on all imported products.
The Constitution affords Congress the power to “lay and collect Taxes, Duties” as part of its remit to “provide for the common Defence [sic] and general Welfare of the United States.”
That section of the founding document granted Congress control over tariff policy, Inu Manak, a fellow for trade policy at the Council on Foreign Relations, told ABC News. But, in recent decades, the legislative branch has increasingly handed over such power to the executive.
“For more than 80 years, Congress has delegated extensive tariff-setting authority to the President,” the Congressional Research Service, a nonpartisan group made up of congressional staff, wrote in a February report.
During his first term, Trump invoked laws from that period to enact tariffs. Steel and aluminum tariffs drew upon national security powers afforded by a measure signed into law more than 50 years earlier. Trump’s tariffs on Chinese goods depended upon a law from 45 years beforehand, which President Joe Biden invoked in service of tariffs of his own.
“Congress didn’t really push back,” Manak said.
Trump could use similar authority to move ahead with a plan for tariffs between 60% and 100% on Chinese products, experts said. Section 301 of the Trade Act of 1974 allows the executive to gain temporary tariff authority in response to an adverse trade policy taken up by another country. Trump could use the measure to justify tariffs on China in a fashion resembling his first term, Lovely said.
“Probably yes,” Lovely added, though she noted that the time limit on the authority could require Trump to apply for a second round of approval from the Office of the United States Trade Representative, a government agency.
Universal tariffs of up to 20% on all imported goods would likely demand legal mechanisms with little or no precedent, experts said. Trump could declare a national emergency and draw upon the Trading with the Enemy Act, which includes emergency authority to impose tariffs. Then-President Richard Nixon used the law to impose a 10% tariff on all goods over a four-month stretch in 1971.
Trump could avail himself of another lever of power: The International Economic Emergency Powers Act. It allows the president to stop all transactions with a foreign adversary that poses a threat, which could include, in theory, a potential tax on imports, experts said. However, a set of universal tariffs would mark an unprecedented use of the 1977 law.
“All our trading partners pose an unusual, extraordinary threat?” Alan Wolf, a former deputy director-general of the World Trade Organization, said earlier this month in a blog post for the Peterson Institute for International Economics. “That would simply be too large a power grab to have been within what Congress intended in this statute.”
Trump could face court challenges that may reach as high as the Supreme Court, some experts said. The threat of such a move could also draw opposition from Congress, which could seek to repeal or amend the law.
“I don’t know if there would be enough pressure from Congress because as we saw last time, they went along with him,” Manak said.
The lack of close precedent makes it challenging to anticipate how Congress or the courts will act, Lovely said. Opposition could also come from foreign nations that impose retaliatory tariffs, straining some industries and prompting additional pressure on elected officials.
“There’s just a whole lot of uncertainty,” Lovely said.
(NEW YORK) — Inflation has loomed over the U.S. economy like a movie villain, haunting grocery store trips and gas runs. While costs remain much higher than they were a few years ago, those rapid price increases have mostly vanished.
Inflation stands at its lowest level in more than three years, hovering right near the Federal Reserve’s target rate of 2%, U.S. Bureau of Labor Statistics data this week showed.
Not long ago, a once-in-a-century pandemic upended the economy, sending millions nationwide into lockdown and snarling the global supply chain. Meanwhile, trillions of dollars in government support helped Americans spend amid the calamity.
A resulting imbalance between supply and demand sent prices soaring. The Russia-Ukraine war exacerbated the problem, causing gas and food shortages. Within a few years, the massive issue has largely been resolved.
“This was the highest inflation over the longest period that we’ve seen in decades. It was serious,” Claudia Sahm, chief economist at New Century Advisors and a former Fed official, told ABC News.
Here’s what to know about how inflation has come back down:
Repaired supply chain
During the pandemic, factories worldwide shut down. Workers stayed home for fear of getting sick. Freight ships waited off the coast of overwhelmed U.S. ports.
The pandemic clogged the global supply chain, imposing shortages for everything from cars to lumber to exercise equipment. Meanwhile, people stuck at home focused their spending on those exact sorts of products, since COVID-19 shutdowns prevented them from going out to eat or taking a vacation.
When too much money chased after too few products, prices climbed.
“The pandemic was the root of all evil in the economy,” Sahm said.
When lockdown rules were lifted, demand for goods slowed and manufacturers revved up production as workers returned. The nation’s ports loosened up the backlog of container ships, cutting freight prices dramatically and lowering costs for retailers.
Economists disagree over the role that elevated corporate profits played in driving inflation, as some say they account for more than half of the increase in prices while others say they have caused little or none of the hikes.
In some cases, the easing of supply chain blockages took months or even years to work their way through the global economy.
Take car prices, for example. When semiconductor production slowed nearly to a halt, carmakers lost out on a part necessary for production. Car prices skyrocketed, sending many consumers to the used car market. In turn, used car prices soared. So did costs for car repairs and, as a result, car insurance.
“Those have all now unwound,” William English, a professor of finance and former economist at the Federal Reserve, told ABC News.
Interest rate hikes
In response to rising inflation, the Fed embarked upon an aggressive series of interest rate hikes. Beginning in 2021, the Fed rapidly hiked interest rates, eventually putting borrowing costs at their highest level in more than two decades.
In contrast with the supply chain fixes, the interest rate hikes aimed to address the other side of the equation driving inflation: excess demand.
In March 2020, then-President Donald Trump signed into law a $2.2 trillion economic stimulus package, including direct payments of $1,200 and expanded unemployment insurance, among other measures. Months later, in December, Trump enacted a second $900 billion round of government support.
The following year, President Joe Biden signed a $1.9 trillion economic stimulus package of his own, including another round of $1,400 direct payments as well as an expansion of the child tax credit.
The government support helped buoy demand, even as the pandemic posed major challenges for the supply chain and decimated the service economy made up of sectors like restaurants and hotels.
“Now you have money, and nowhere to go and buy things,” said Hernan Moscoso Boedo, an economist at the University of Cincinnati.
By raising interest rates, the Fed made borrowing more expensive for consumers and businesses alike, making it difficult for them to take on loans for big purchases or large investments.
“Over the last few years, we’ve seen less money in the market because of the interest rates,” Boedo said, adding that the reduction of demand has helped ease prices.
Last month, the Fed reversed course, cutting interest rates by half a percentage point and dialing back the fight against inflation. While interest rates remain high relative to recent decades, the landmark shift suggests that the Fed considers the end of the inflation battle to be in sight.
The Michael Kors Store on Rodeo Drive on Feb. 23, 2017 in Beverly Hills, Calif. (Fg/bauer-griffin/GC Images via Getty Images, FILE)
(NEW YORK) — The Federal Trade Commission is asking a federal judge in New York to block the $8.5 billion merger of Tapestry, the company behind Coach, Kate Spade, and Capri, which controls Michael Kors.
In April, the FTC sued to block the sale, arguing that these brands dominate what’s known as the “accessible luxury” market and that if they combined, consumers would suffer by paying higher prices.
“This has to be the first time the focus of a federal court hearing turned to a $279 Kate Spade tote described as ‘colorful, joyful, feminine, green and white seen on Emily in Paris,” ABC News senior investigative reporter and correspondent Aaron Katersky said on Good Morning America Tuesday.
Tapestry argues the FTC is ignoring the reality of a marketplace, in which consumers have a lot of choices, suggesting it takes a mere stroll through Bloomingdale’s or Macy’s to see Gucci, Kors and Calvin Klein bags fighting for attention.
Michael Kors himself testified last month during a hearing, telling the judge there’s already plenty of competition for handbags, noting that he learned about one brand when he saw a photo of pop superstar Taylor Swift wearing an Aupen bag similar to those made by Kate Spade.
Kors also testified his handbags have “reached a point of brand fatigue” and a lawyer arguing in favor of the merger said it would revitalize the Michael Kors brand, so consumers have yet another choice. The goal, he said, is to sell more handbags to consumers.
The judge took these arguments under advisement and could rule at any time.
