Speaking today, Richmond Fed President Thomas Barkin said recent policy developments — including a major tax bill, immigration changes, and the completion of key tariff and trade negotiations — have lifted much of the “fog” around the economic outlook. What happens next, he said, will hinge on how households respond to potential price increases from tariffs.
Barkin pointed to evidence that consumers are front-loading purchases of goods while cutting back on services, a pattern that, if sustained, could limit tariff-driven inflation. “If we see this kind of demand destruction more broadly, the inflationary impact of tariffs would be less than many anticipate,” Barkin said.
If such shifts in spending occur more broadly, however, he said, “businesses will see volumes drop and margins squeezed. They will look for costs to cut. Employment could take a hit as a result”.
“We may well see pressure on inflation, and we may also see pressure on unemployment, but the balance between the two is still unclear,” he said. “As the visibility continues to improve, we are well positioned to adjust our policy stance as needed.”
