SCOTT SIMON, HOST:
Higher tariffs took effect this week on goods from dozens of countries. Forecasters say the import taxes imposed by President Trump are likely to lead to higher prices and slower economic growth. That is a double whammy that is sometimes called stagflation. NPR's Scott Horsley joins us. Scott, thanks so much for being with us.
SCOTT HORSLEY, BYLINE: Good to be with you, Scott.
SIMON: And we'll get some clues about how the earlier tariffs have played out next week when the government delivers the latest inflation scorecard. But what's it expected to show?
HORSLEY: It's expected to show that consumer prices in July were up about 2.7, maybe 2.8% from a year ago. We got a little break on gas prices, which helped to keep the overall inflation rate in check. But if you strip out energy and food prices, which bounce around a lot, core inflation looks to be moving in the wrong direction. Forecasters think it was up around 3% in July, and that's before this new round of tariffs even kicked in. You know, tariffs are starting to push up prices. They're also pushing up anxiety because people don't know where all this is going to end. Trump is already threatening to impose more tariffs that would double the price of imported computer chips. Raphael Bostic, who heads the Atlanta Federal Reserve Bank, says nobody can really relax when the tariffs keep ratcheting up like this.
RAPHAEL BOSTIC: I'm always reminded about previous Fed Chair Alan Greenspan, when he said, you know you're winning the battle against inflation when no one is thinking about it. But this is kind of the flip side of that. You know, it's on the front page every day.
HORSLEY: A survey from the New York Fed this week showed Americans now expect inflation to be higher a year from now and five years from now than they did earlier this summer.
SIMON: And how does that affect spending?
HORSLEY: You know, for people at the top of the income ladder, it doesn't make a lot of difference. You know, the stock market's booming, so their portfolios are doing well. If they have to pay 50% more for a cup of coffee, they're not too worried. But for families who are just getting by, it's a different story. They're already stretched to the limit. So any price increase really hurts. McDonald's said this week, it's worried that lower-income customers are eating out less often and pinching their pennies when they do go out. CEO Chris Kempczinski says the fast-food chain has some work to do to get those customers back to the drive-through.
CHRIS KEMPCZINSKI: Too often, if you're that consumer, you're driving up to the restaurant and you're seeing - combo meals, you know, could be priced over $10, and that absolutely is shaping value perceptions and is shaping value perceptions in a negative way.
HORSLEY: Kempczinski says that's especially important when people are anxious not only about tariffs, but also about a job market that suddenly looks a lot less vibrant than it did a few months ago.
SIMON: And what is the latest on that job market?
HORSLEY: Well, remember, last week, we got that report from the Labor Department showing weak job growth in July and little to no job growth the two previous months. It was so bad the president actually fired one of the government's top statisticians, claiming - without evidence - that the report had been rigged. Well, this week, we got a private sector report on the services side of the economy that also points to a real slowdown in hiring.
So if you're the Federal Reserve, now you've got this tricky situation because the weak job market suggests you should cut interest rates, but rising prices say not so fast. That's the essence of the stagflation dilemma. Fed officials have been going around the country holding listening sessions, and Raphael Bostic says, it's pretty clear that the public puts the priority on curbing inflation, not propping up the job market.
BOSTIC: Inflation is something that is on everyone's mind. It is incredibly painful. It is real-time jarring. So when you are in the store a week later and the prices are different, you notice that. That stays in your head, and it has a real impact on folks.
HORSLEY: One of the lessons from the 2024 election is that Americans really don't like inflation, even when it comes with a booming job market. Frustration with rising prices helped put Donald Trump back in the White House. And that's a lesson the president ignores - at his peril - as he pursues these higher tariffs.
SIMON: NPR's Scott Horsley. Thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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