Fed’s Kugler Drops Tariff Bomb: US Growth Set to Stumble

Another day, another Fed official warning about self-inflicted economic wounds—this time it’s tariffs choking growth. Wall Street’s gonna love this one.

Kugler’s blunt assessment cuts through the usual political spin: protectionism comes with a price. And who pays? The same folks cheering for ’economic sovereignty’ until their 401(k)s tank.

Funny how tariffs never seem to hurt the people who make the rules—just the rest of us holding bags of inflationary shrapnel.

Kugler notes that the average tariffs are still high after cuts

Still, Kugler said the economy will feel the hit if tariffs stay NEAR their new levels, and uncertainty itself is already shaping business plans through “front‑loading, sentiment, and expectations.” She noted the average tariff, even after cuts, is “much higher” than at any time in many decades.

If duties remain far above where they stood earlier in the year, she warned, the economic growth will weaken. Higher costs, she said, would lower inflation‑adjusted incomes and raise business expenses, leading households to buy fewer goods and firms to order fewer inputs.

Over time, that could hurt productivity. Firms paying more for parts and facing softer demand might scale back investment and settle for less efficient production mixes.

In the near term, steeper import bills are set to feed straight into consumer prices and the cost of items used in factories. Imports account for only about 11 percent of gross domestic product, yet tariffs on intermediate goods such as aluminum and steel can Ripple through many supply chains.

Kugler pointed to the Dallas Fed’s latest survey of Texas executives, where 55 percent of companies said they plan to pass most or all tariff costs to customers. Of those, 26 percent aimed to raise prices when tariffs were announced, and 64 percent expected to do so within three months. “That suggests to me that price increases may occur soon,” she said.

She also cited the University of Michigan’s consumer survey, where longer‑term inflation expectations hit their highest mark since June 1991.

“With inflation and employment potentially moving in opposite directions down the road, I will closely monitor developments as I consider the future path of policy,” Kugler concluded.

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