By coinnews 
00:00 Speaker A
Well, consumer prices in April remained sticky despite some signs of cooling inflation continuing to run above the Fed’s target, this target that will likely remain elusive as the tariff impact of consumers remains a risk. For more on where the road ahead for inflation is going, let’s get to RBC Capital Markets economist Carrie Freestone, joining us in this studio. Carrie, thanks for being here.
00:16 Carrie Freestone
Thanks for having me.
00:18 Speaker A
So, the inflation reading, first of all, backward looking, doesn’t include a lot of the tariffs. Um, did come in better than estimated, but let’s look forward when it comes to inflation because you, you’re in your team don’t think that this is the low. You think that we’re going to continue to see a trend higher.
00:35 Carrie Freestone
Absolutely. I mean, we really haven’t seen the full impact of tariffs come through yet. And it was actually surprising this morning because even if you looked at the auto sector, we actually saw a pull back in motor vehicle parts and equipment. And that’s something that surprised me and it’s really telling us that, you know, it’s going to be a while for firms to change their behavior and for us to start to see an impact on core goods prices. Now, one thing that’s positive is obviously the administration’s walk back yesterday on tariffs on US imports from China is a positive development, but the average effective tariff rate here in the US is still 13%, which is five times higher than a year ago. So while previously we thought core inflation by the end of the year might be 4%, we’re now thinking closer to 3%, but that’s still quite a ways away from the Fed’s target, right? So, you know, the current backdrop makes it exceptionally challenging for us to get to where we want to be.
01:32 Speaker B
Carrie, I’m just interested, with oil at 63, how does that play into your inflation outlook?
01:40 Carrie Freestone
Yeah, so we’re definitely in a situation where we’re going to see downward pressure from energy prices and upward pressure from core goods. So we’re in a situation where we’re going to see that switch a little bit, and the pressure is really going to be coming through from core in the year ahead. Um, even today, you know, 2.8% core, so that’s that’s where we’re seeing a lot of the pressure and that’s something that we can expect to continue to see.
02:03 Speaker A
So what does all of this mean for the Federal Reserve, right? Because on the one hand, the tariffs coming off the the worst case scenario seem to be a positive development for the Fed’s efforts to balance its dual mandate. But then if we are still going to see that trickle through, it’s still going to be potentially challenging for them, right?
02:25 Carrie Freestone
They’re still a challenging position at the last meeting, Chair Powell emphasized that, you know, there’s time to exercise patience, and I think that’s even more true today after yesterday’s announcements. But we’re still in a situation where, you know, when we see the upward pressure on core goods prices, that’s going to result in a real erosion in consumer purchasing power, right? So we could still see, you know, a hit to the labor market, specifically, um, in those trade exposed sectors. And while, you know, Chair Powell has been non-committal about which side of the mandate he’s going to think bears more weight, in our view at RBC, we lean towards the fact that we think they’re going to be concerned about higher unemployment. So right now in our forecast, we have three cuts baked in in the back half of the year. Now again, you know, it’s it’s a fast evolving situation, so things could definitely change, um, but we do think that that side of the mandate is going to bear more weight.