00:00 Speaker A
Okay. And so we’ve heard this word uncharted, we’ve heard the word uncertainty come up from some of the economists and CEOs kicking off this new earning season as well with relation to their conversations around tariffs. With that in mind, is there any analog that we can look to in the past to really get a sense of how long it takes for tariffs to show up in inflationary prints?
00:40 Claudia Sahm
So this is this is what’s really tricky, right? The the level of tariffs that we’re at now, I mean, the United States has not seen that level of tariffs in in, you know, we’re basically like hundred year level of tariffs. And so we it’s important to, you know, go through our models, look at, you know, kind of the estimates, but any kind of modeling that we would have as economists is based on a historical record that really doesn’t have tariffs going from two to twenty percent in in a short period of time. So that, and I think that is why we keep hearing the word uncertainty because any decision maker knows that I can bring you an estimate. I can give you odds of a recession happening or not happening, but we all know that there are huge bands around it because what do what do we have to base on it. Right? And the tariffs here too, they are very broad based. We’re hitting a lot of goods. They’re happening very fast. And so we can we can say, I think with a lot of confidence, the direction this is headed. Prices will be going higher. There will be a hit to growth. But it is it is really not, I mean, we really can’t say with any degree of confidence what those numbers will be. And so that means you’ve got to wait. It’s an empirical question. We have to see the data how the behavior changes. And unfortunately, waiting, whether you’re the fed or you’re a business maker or consumer, sometimes waiting comes at a cost.
04:12 Speaker A
Yeah, Claudia, to that end, can you put the toothpaste back in the tube on tariffs, especially in the context of the labor market, which so many of our sources have been telling us, people like you telling us that is the key question moving forward for the Fed, is that labor market crack?
04:42 Claudia Sahm
Right. And and we should remember, yes, she told us we’re very focused on tariffs and and there’s a high degree of uncertainty about it, but I also take a lesson from this just about the policy making process in general coming out of the White House. There are several policies the administration has chosen to focus on out of the gates that are negative growth policies, whether it’s, you know, restricting immigration, whether it’s downsizing the federal government, cutting contracts, and then tariffs on top of it. And frankly, in all cases, the policy process has been really disjointed and confusing. So I like I think there’s kind of a bigger meta picture of like, what are the risks coming at the economy right now? And it’s it’s pretty unsettling, and I can I fully understand why in that setting they you have the Federal Reserve being very very patient. Very, we want to see the data. We want confirmation that this isn’t going to be a persistent boost to inflation. But but that should tell us all that like they’re not stepping in anytime soon.
06:32 Speaker A
Claudia, when I was speaking with the Delta CEO Ed Bastian, he was acknowledging some of the efforts that they’re taking right now as they enter into what they’re calling defensive mode because of the uncertainty around tariffs. And he didn’t go as far as to say that they need to cut back on their head count or their workforce, but they are taking other measures within their operations of the business. However, there are some businesses that are going to have to consider whether or not they need to descale or or downsize their businesses as a result of that uncertainty. To what extent would you be looking for tariffs to also have a headwind on the employment situation?
07:31 Claudia Sahm
Right. Now, tariffs are absolutely a headwind on the employment situation. It may it may end up being first and foremost, cutting back of hours, not giving raises. Like there are ways to to save that don’t involve layoffs. And we haven’t seen corporations doing layoffs up to this point. So but but it’s it that is a margin for them to adjust. You know, it could be, oh, the company doesn’t pass it on to consumers in terms of prices. Well, but then they have to work on their margins and then they have to do cost savings. So someone is going to pay for this much higher level of tariffs within the business community with the workers, consumers. It’s not clear who’s paying, but like and it may be if all margins adjust, that’s what gets us to the least disruptive path, that we just slow down and then the price levels adjust and we get passes and we don’t have a severe contraction. But but it’s going to be a whole multitude of decisions being made here.