00:00I want to talk for a few minutes about tariffs and inflation.
00:06What does history tell us about tariffs and its impact on inflation or deflation?
00:15So the thing is, we've been through a long period in which tariffs were going down.
00:20Remember, since World War II, really, it's been a process of lowering tariffs globally.
00:25So there just isn't a lot of modern learning on that.
00:29I think people look at the incidence of tariffs during the president's first term,
00:33but those were like one-sixth the size of what people are estimating now.
00:40And they do find some effects on inflation.
00:43But remember, in 2019, when those tariffs were put into place, the economy was slowing.
00:48We actually cut rates three times.
00:50Inflation was running at 1.5%.
00:52So it was a very different time.
00:54This is different.
00:55I think one of the reasons why it's so challenging is that there really isn't a modern precedent.
00:59And I think we have to be humble about our estimates.
01:02And we are very open to the possibility that transmission through into inflation will be less than we think or maybe more than we think,
01:09which is why we're in a position of wanting to take our time and make a smart decision as we see how this unfolds.
01:15Well, obviously, the size of the tariffs makes a difference, does it not?
01:20It does.
01:20And we don't know yet the size of the tariffs.
01:25We don't.
01:25And we don't have a view on any of the merits at all.
01:28That's not our job.
01:29Our job is inflation, as you know, and maximum employment.
01:32Does it also matter, let's assume that there is upward price pressure, would it matter how much businesses decide to pass on versus just eat?
01:49Does that make sense?
01:50Yes, that matters.
01:51That is what matters.
01:52You know, the question is who's going to pay for the tariffs?
01:55Originally, it's the importer, but it gets passed along through the distribution change to some extent to the consumer.
02:00The ultimate question of it is how much of it does show up in inflation.
02:05And honestly, it's very hard to predict that in advance.
02:09So we're watching to see, you know, what shows up in measured inflation.
02:13If we if if if if the president's trade negotiators pursue reciprocity, which I define as both sides reducing in a quid pro quo,
02:27reducing tariffs and trade barriers as much as possible, ideally, in a perfect world, we would end up with two sides with zero tariffs and zero trade barriers.
02:40Would that be inflationary?
02:42No, not at all.
02:43That would cause the economy to roar, wouldn't it?
02:47I think it would be.
02:48Thank you, Mr. Chairman.
02:51I appreciate your endorsement, Mr. Chairman, of the reconciliation bill.
