Goolsbee Tariff Scale is significantly Higher Than The Fed Anticipated. Indices in China Plummeting

In an interview that ended just a few minutes ago, Austan Goolsbee from the Fed expressed growing concern over the economic consequences of the new U.S. tariffs. He emphasized that tariffs on intermediate goods — that is, raw materials used in production — could seriously harm American industry and disrupt supply chains. Goolsbee noted that there is a real sense of unease that high inflation could return, especially as sentiment among consumers and businesses has sharply deteriorated. He warned that sentiment indicators are approaching crisis levels, which is alarming, even though the link between sentiment and actual spending appears to be weaker now than in the past.

Goolsbee pointed out that companies are hesitant to invest due to unclear and shifting rules in international trade and economic policy direction. The banker notes that the impact on investment is negative, but its scale is not yet known. He also added that there is significant divergence among companies on how much of the tariff cost can be passed on to consumers. In some cases, this may lead to financial difficulties or even bankruptcies among suppliers. He also admitted that the scale of the tariffs is significantly larger than was previously expected or modeled, which further complicates the situation. In conclusion, Goolsbee stated that although markets react quickly to new information, the Fed must maintain a long-term perspective in policy making, especially in the face of unpredictable supply shocks.

Market reaction to US-China escalation (update)

Indices returned to declines during the interview, following the U.S. announcement of additional retaliatory tariffs on China. The market situation is very concerning, and tariffs of this magnitude between the U.S. and China pose a serious threat to both economies. This level of tariffs is aimed at freezing trade rather than generating additional budget revenues, and under current conditions, it is a clear escalation of the conflict. In our view, the market still holds hope for a quick agreement, as in the long run, 104% tariffs would be devastating for American companies, and the reaction in the indices should be significantly more severe.

CFDs on the Chinese index CHN.cash completely erase the gains and deepen the declines. A similar situation is observed on the indices in the USA.

Source: xStation 5

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