WASHINGTON/SAN FRANCISCO – U.S. Federal Reserve staffers have scrambled since January to decipher what Trump administration trade policies will mean for the economy, with published tallies of potential income losses, inflation estimates running as much as 2 percentage points higher, and breakdowns showing state-by-state winners and losers.

The research papers and notes, at least a dozen and counting, have taken different approaches to estimate the implications of the still evolving trade war, which has pushed U.S. import taxes to levels not seen in decades and, at times, to their highest since the Great Depression.

Given the shifting administration announcements, with some of the stiffest tariffs now on hold, none stands out as a definitive take.

But the research effort has been systemwide and steady, reflecting the overarching role of trade policy in the national economic debate and in Fed deliberations over monetary policy.

The Fed held its policy interest rate steady in the 4.25% to 4.5% range at its last meeting, with officials saying they are reluctant to change it until they know which way inflation and jobs will pivot. Minutes of that meeting will be released on Wednesday and may provide more detail about how Fed staff and policymakers perceive the impact of the tariffs imposed so far.

Fed governor Christopher Waller said in a May 14 speech the central bank is in “firefighting” mode to understand what he has called “one of the biggest shocks to affect the U.S. economy in many decades” — an all hands effort to analyze a potential rewrite of the global trading system after decades of closer economic integration among nations.

After Trump’s April 2 tariff announcements proved larger and more extensive than anticipated, “questions were asked of staff around the Federal Reserve system such as, ‘What will this do to the U.S. economy? What will happen to inflation and unemployment?,'” Waller said “The answers to these questions are obviously time sensitive.”

The ongoing research, Fed officials say, will be particularly useful once the final tariff rates and any retaliatory steps by other nations are in place.

But staff’s initial findings and analysis may already be influencing the debate, generally undergirding Fed officials’ topline conclusion that tariffs will raise prices paid by U.S. households and lower purchasing power.

Administration officials argue that the tariffs and trade details they will impose or negotiate will raise money for the U.S. Treasury and boost U.S. manufacturing jobs without sparking higher inflation.

INFLATION IN FOCUS
Fed researchers have been particularly keen to understand how import taxes influence prices, a complex process that depends on things that shift in reaction to each other, like the willingness of producers or retailers to offset tariffs with lower profits, and the ability of consumers to pay more for imported goods, change what they buy, or forego some purchases altogether.

A May note by Fed board economists estimated that the tariffs imposed on China in February and March had already added about a third of a percentage point to goods prices excluding food and energy in the first months of the year, and that but for the tariffs those prices would have fallen — a conclusion that helps explain why policymakers are reluctant to cut interest rates until they know more about inflation that may be in the pipeline.

Larger tariffs have been put in place since that study was done, and even bigger ones are threatened.

“Once we start to get some clearer contours, I think that’s the time to really start to use these models more robustly, ” Atlanta Fed president Raphael Bostic said in comments to reporters on May 20 in Florida.

A Boston Fed study in February of general inflation and an Atlanta Fed study released the same month looking at everyday consumer items both saw prices moving higher, with the estimates depending on the tariffs used to make the estimates.

The fact that the final level of tariffs remains in such flux is another factor keeping Fed officials on the sidelines. Trump has said there will be a baseline tariff of 10% on imports, but some of the paused tariffs exceed 100%, and unexpectedly on Friday the president said there would be a 50% tariff on all imports from the European Union and a 25% levy on all imported iPhones.

CONSUMPTION AND INCOME
Along with rising prices Fed officials are concerned about how changes in trade policy may influence U.S. economic growth if consumers, for example, are left with less purchasing power.

The Dallas Fed in May highlighted one of the hurdles to sorting that out. The outcomes for the U.S. economy depend heavily on whether other countries respond to Trump’s tariffs with retaliatory levies on U.S. exports.

A 25% across-the-board tariff without retaliation could actually boost U.S. consumption by around 0.5%, assuming that proceeds from the tariffs were funneled back to consumers, perhaps through tax cuts.

The same tariffs with retaliation lead to an overall 1% decline in consumption, unevenly distributed across states with effects ranging from a 2.9% decline in Washington state to a 2.6% boost in Wyoming. As with any tax, tariff impacts vary from location to location based on the structure of the local company, with states that are exposed to global supply chains or whose citizens consume more imported goods likely to be hit harder than others.

San Francisco Fed researchers, meanwhile, published a working paper in May that showed high tariffs and retaliation from other countries would lower inflation-adjusted income by 1% nationally, with the biggest hits felt in California, Texas, and the important political swing state of Michigan.

RAISE PRICES OR FIRE WORKERS?
Along with quantitative studies, the Fed has fielded surveys to ask businesses how they may respond to rising tariffs, a staple issue also in conversations officials and staff are holding around the country to sense whether firms are primed to raise prices or fire workers.

Boston Fed researchers, in a survey of small business tariff-related expectations conducted just before Trump took office, found that firms on average anticipated less-aggressive tariffs than actually seen, with 20% tariffs seen imposed on China, 15% on Mexico and non-Asian countries, 14% on Europe, and 13% on Canada. The firms indicated they would pass cost increases to consumers over two years; non-importers felt tariffs would have little impact on prices and potentially lower their costs.

The Cleveland Fed in April published results of a February survey of regional businesses.

The firms largely expected that while tariffs would lead to higher input costs, higher selling prices, and lower demand, there would be no effect on employment — a finding that also buttresses U.S. policymakers’ willingness to keep interest rates on hold given a still, relatively strong, job market. — Reuters

NEW YORK – Boards and the owners of retailers whose shares have been pummeled by U.S. President Donald Trump’s trade war are increasingly warming to offers to sell – and to escape the market chaos that has caused company valuations to seesaw in recent months.

Following sneaker-maker Skechers’ take-private deal earlier this month, dealmakers expect other retailers to clinch their own deals to go private in the near-term, especially if Trump does not soon settle on a more stable trade policy, according to interviews with 10 investment bankers and M&A lawyers.

Retailers in particular have been hard-hit by Trump’s rapidly shifting tariff announcements, and are frustrated with an inability to provide earnings guidance.

Skechers was in talks with investment firm 3G Capital long before its market value began a precipitous drop from an all-time high of around $11.85 billion on January 30 – the day before the White House announced its first round of tariffs against China – according to two people familiar with the matter.

The flood of tariff announcements beat the company’s value down to about $7.4 billion by the end of April. Skechers, which manufactures most of its goods in China and Vietnam, pulled its 2025 earnings guidance around that time, citing “macroeconomic uncertainty stemming from global trade policies.”

Skechers is majority-owned by the Greenberg family. The tariff turmoil made the idea of going private all the more attractive to the Greenbergs, said the sources, who asked not to be named because the negotiations were private.

The company announced plans on May 5 to sell to 3G Capital in a so-called take-private deal for about $9.4 billion. Selling to a privately held firm like 3G removes the company’s shares from public exchanges, which effectively shields its earnings from public scrutiny and protects its valuation from unpredictable market swings.

Skechers declined to comment.

Other retailers are already in talks to sell to investment firms and other companies, the sources said.

“The breakneck pace of the instability, the volatility, and the macro changes have made board members start thinking, ‘Would it be better to manage this business in private where we don’t have to report out to the street with the same quarterly cadence and where we can control operational, financial, and capital allocation decisions in private?’” said Kurt Anthony, head of consumer and retail investment banking for the Americas at UBS.

TAKE-PRIVATE TARGETS
Few industries have been hit harder by Trump’s tariffs than retailers, many of which manufacture most of their goods overseas and have had to pull earnings guidance amid fickle foreign policy. After de-escalating his trade war, Trump on Friday levied fresh threats against Apple AAPL.O and the European Union, sending markets that had mostly recovered from his initial trade moves reeling once again. The S&P Retail Select Industry index had fallen by 6% year-to-date as of Friday’s market close, while the broader S&P 500 Index had fallen 1.1% in the same period.

“There are a lot of CEOs that reached out to me and said ‘I’m tired, I love what I do, but maybe it’s time I go private,’” said Jamie Salter, CEO of Authentic Brands Group. The company, which owns the intellectual property of several apparel companies including Reebok and Champion, acquired Dockers’ IP from Levi’s last week. “I think you’re going to see good companies either stay private, or go private.”

And companies where a family – as in the case of Skechers – or a single investor has a controlling stake can sign these deals faster and more easily than those that need broad shareholder approval.

Investment bankers and advisers pointed to other retailers with similar ownership structures as potential take-private targets: Under Armour where founder and CEO Kevin Plank has majority voting control, Columbia Sportswear Company where chairman and CEO Timothy Boyle and his family are the biggest shareholders, and Birkenstock with private equity firm L Catterton holding a majority stake. Under Armour, Columbia, Birkenstock and L Catterton did not respond to requests for comment.

In Skechers’ case, navigating the market uncertainty in private made sense to father-son duo Robert Greenberg, chairman and CEO, and Michael Greenberg, president, said the two people familiar with the family’s thinking. And a buyer like 3G, which has held some investments for over a decade, can afford to ride out short-term tariff and market volatility compared with traditional private equity firms that tend to hold their investments for a handful of years, the people said. — Reuters

BEIJING/SINGAPORE – After Chinese banks reduced deposit rates last week, Miro Chen launched a social media poll: “When interest rates fall, do you save or spend?”
More than 80% of some 5,000 responses chose saving, underlining the challenge for policymakers seeking to shore up demand and economic growth.

“The result is one-sided, indicating people are very worried,” said the 37-year-old, who works for an internet company in southern China. “I am not sure how long my company can survive,” he added, explaining why he also saves.

China’s central bank eased monetary policy last week to limit damage from the trade war with Washington. On Friday, it lowered the ceiling for deposit rates to offset margin pressure on banks and prompt savers to spend or invest more.

But successive cuts to deposit rates in recent years have failed to curb explosive growth in Chinese household savings, intensifying concerns over the side-effects that lower returns have on the country’s consumers, who tend to build their own safety net.

At the end of March, total household deposits surpassed 160 trillion yuan ($22.30 trillion), up 10.3% from a year before, and equivalent to 118% of last year’s gross domestic product (GDP), official data show. Retail sales, by comparison, rose 4.6% year-on-year in the first quarter.

Minxiong Liao, senior economist at GlobalData.TS Lombard APAC, says lower interest rates “likely reduce income growth” for China’s population.

“People, especially those born in the 1980s, may need to save more rather than spend in the coming decade to secure retirement cashflow, as low interest rates are likely to persist.”
Chinese households have been saving more due to worries over job security in a stuttering economy facing deflationary pressures, as well as wealth concerns caused by a prolonged property crisis.

Liao and other economists say the best policies to increase consumption in China would be bolstering its pension system and other social benefits to curb households’ savings needs.
Since losing his marketing job a year ago, 30-year-old Lawrence Pan, now a freelancer, no longer pays his social insurance contributions, although he could if he chose to.

He prefers to save money on his own as he doesn’t trust the state system, which the Chinese Academy of Sciences sees running out of money by 2035.

Pan saves about two-thirds of his income into his current account. He says fixed-term savings offer too little interest for him to bother with deposits.

“I feel my savings and spending habits would be more balanced if deposit rates were higher. A higher interest rate signals that the economy is getting better,” said Pan. “In such a scenario, I would spend more.”

‘PAINKILLERS’
China has repeatedly pledged to make household consumption – which is about 20 percentage points of GDP below the global average – a more important driver of economic growth.

The world’s second-largest economy relied heavily on exports last year to hit its roughly 5% expansion target and analysts say higher U.S. tariffs call for greater urgency on measures that rebalance the economy towards domestic demand.

But lower interest rates may work against that aim.

Michael Pettis, senior fellow at Carnegie China, says they facilitate a transfer of resources from the net savers in the economy – mainly households in China’s case – to the net borrowers, which are the business and government sectors.

“In a financial system like that of China today, and also of Japan in the 1990s, lower real interest rates don’t seem to boost consumption,” Pettis said.

Also like in Japan, which has grappled with decades of economic stagnation, the side effects on borrowers are growing as well.

Elisabeth Werenskiold, senior economist at Fathom Consulting, says monetary policy easing in China makes many businesses dependent on low borrowing costs in the long run, leading to the “zombification” of entire industries.

She says cash flow in sectors such as construction, airlines, travel and computer services covers less than five months of interest expenses, describing anything below five as the “danger zone”.

“It’s a bit like painkillers,” Werenskiold said. “You can treat the pain, but unless you treat the source you’ll have to keep taking the painkillers, increasing the risk of negative side effects.”

Thrifty households can also force cost-cutting measures throughout the economy, risking a deflationary spiral.

Book editor Erin Yao, 32, moved last year from Beijing to cheaper Wuhan in central China to save more of her income. Her company’s strategy shift to lower-cost books makes her worry about the economy, so she plans to put money aside for rainy days even if deposit rates drop to zero.

“My first reaction to the deposit rate cut was: has the economy entered a downturn?” Yao said.

“I won’t spend all my money to enjoy life now. I will keep something aside in case my parents or I become ill,” she said. — Reuters

WASHINGTON – New orders for key U.S.-manufactured capital goods plunged by the most in six months in April amid mounting uncertainty over the economy because of tariffs, suggesting business spending on equipment weakened at the start of the second quarter.

The report from the Commerce Department on Tuesday also showed shipments of these goods falling last month. Economists said President Donald Trump’s flip-flopping on import duties was making it difficult for businesses to plan ahead. That has been evident in the deterioration in sentiment among businesses.

“I have predicted for months that business investment will be the main driver of a softer economic performance this year, as executives postpone their capital projects until they have more clarity on policy,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. “These data offer the first confirming evidence of that hypothesis.”

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, tumbled 1.3% last month. That was the largest drop since last October and followed an upwardly revised 0.3% gain in March, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders dipping 0.1% after a previously reported 0.2% drop in March.

Core capital goods shipments slipped 0.1% after increasing 0.5% in March. Nondefense capital goods orders slumped 19.1%. Shipments of these goods rebounded 3.5% after falling 1.1% in March. Front-running by businesses eager to avoid higher prices from Trump’s sweeping tariffs on imports contributed to business spending on equipment, mostly information processing equipment, surging at its fastest rate in 4-1/2 years in the first quarter.

That helped to limit the drag on gross domestic product from a flood of imports. Trump has delayed higher import duties on most countries until July. The White House this month announced a deal with Beijing to slash tariffs on Chinese goods to 30% from 145% for 90 days.

The truce in the trade war between Washington and Beijing helped to lift consumer confidence in May after deteriorating for five straight months. Consumers, however, continued to worry about tariffs raising prices and hurting the economy.

The Conference Board’s consumer confidence index increased 12.3 points to 98.0 this month, blowing past economists’ expectations for an improvement to 87.0.

But concerns about the labor market lingered, even as consumers planned to spend more over the next six months on big-ticket items such as motor vehicles and household appliances, take vacations and buy houses.

The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, narrowed to 13.2 from 13.7 in April. This measure correlates with the unemployment rate in the Labor Department’s monthly employment report.

Trump last week ratcheted up his trade war, proposing a 50% tariff on European Union goods starting June 1 and threatened Apple AAPL.O with a 25% duty on any iPhones manufactured outside the United States. Trump at the weekend, however, backed off his threat against the EU, restoring a July 9 deadline.

Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

FRESH ROUND OF FRONT-LOADING
Economists are anticipating a period of volatility for business spending, with the pauses in higher tariffs for Chinese and EU products seen unleashing a fresh round of front-loading. Ultimately, they expect investment to soften this year.

Trump sees tariffs as a tool to, among other things, revive a long-declining U.S. industrial base, a feat that economists argue would be difficult to achieve in the short-term because of structural issues, including labor shortages.

While orders for computers and electronic products rebounded 1.0% last month, bookings for communications equipment decreased 2.6%. Electrical equipment, appliances and components orders fell 0.2%. But orders for machinery increased 0.8% as did those for fabricated metal products.

Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, dropped 6.3% last month after a slightly upwardly revised 7.6% rise in March.

Durable goods orders were previously reported to have jumped 7.5% in March. They were last month weighed down by a decline in orders for commercial aircraft as well as the fading boost from the tariff-related front-running.

Boeing reported on its website that it had received only eight aircraft orders in April, down from 192 in March. Orders for motor vehicles and parts decreased 2.9%.

Overall transportation orders plummeted 17.1% after soaring 23.5% in March. The Atlanta Federal Reserve lowered its second-quarter GDP growth estimate to a 2.2% annualized rate on the data from a 2.4% pace earlier. The economy contracted at a 0.3% rate in the January-March quarter.

Some economists expect business spending on equipment to hold up if companies more or less maintain the first quarter’s robust pace of front-running of imports.

“It is not until this import-driven boost fades later this year that we expect investment growth in that category to slow sharply,” said Thomas Ryan, an economist at Capital Economics. “We expect business equipment investment to flatline in the second half of the year.”

The tariff-driven economic uncertainty and higher mortgage rates are weighing on demand for homes, resulting in a rise in supply that is curbing house price growth. New housing inventory is at levels last seen in 2007, while the supply of previously owned homes is the highest in more than four years.

A third report from the Federal Housing Finance Agency showed house prices increased 3.7% in the 12 months through March after advancing 3.9% in February.

“Prospects for house prices do not look strong,” said Carl Weinberg, chief economist at High Frequency Economics. “A new slowing trend is emerging as the economy slows and real incomes falter.” — Reuters

The US has stopped recommending routine COVID-19 vaccinations for pregnant women and healthy children, Health Secretary Robert F. Kennedy Jr announced in a social media post on Tuesday, circumventing the CDC’s traditional recommendation process.

Kennedy, FDA commissioner Marty Makary and National Institutes of Health director Jay Bhattacharya said in a video that the shots have been removed from the Centers for Disease Control and Prevention’s recommended immunization schedule.

The changes come a week after they unveiled tighter requirements for COVID shots, effectively limiting them to older adults and those at risk of developing severe illness.

Traditionally, the CDC’s Advisory Committee for Immunization Practices would meet and vote on changes to the immunization schedule or recommendations on who should get vaccines before the director of the CDC made a final call. The committee has not voted on these changes.

Kennedy, a long-time vaccine skeptic whose department oversees the CDC, has been remaking the U.S. health system to align with President Donald Trump’s goal of dramatically shrinking the federal government.

“Last year, the Biden Administration urged healthy children to get yet another COVID shot despite the lack of clinical data to support repeat booster strategy in children,” Kennedy said in the video.

The CDC, following its panel of outside experts, previously recommended updated COVID vaccines for everyone aged six months and older.

Insurers said they are reviewing the regulatory guidance to determine their policies, which typically follow the ACIP recommendations.

A spokesperson for CVS Health said the company is determining whether changes in health insurance coverage are required as the federal government reassesses COVID-19 vaccine eligibility, while a Blue Cross Blue Shield Association spokesperson said preventative health benefits, including COVID vaccines, are essential in keeping patients healthy.

‘TURNED UPSIDE DOWN’
“The recommendation is coming down from the secretary, so the process has just been turned upside down,” said William Schaffner, professor of infectious diseases at Vanderbilt University Medical Center and a consultant to the ACIP.

Schaffner said the CDC’s panel was to vote on these issues at a June meeting, where he had expected them to favor more targeted shots instead of a universal vaccine recommendation. “But this seems to be a bit preemptory,” he said.

Dorit Reiss, professor of law at UC Law San Francisco, said in a Facebook post that going around the advisory committee might hurt the agency in the case of potential litigation.

Studies with hundreds of thousands of people around the world show that COVID-19 vaccination before and during pregnancy is safe, effective, and beneficial to both the pregnant woman and the baby, according to the CDC’s website.

But Makary said in the video that there was no evidence that healthy children need routine COVID shots. Most countries have stopped recommending it for children, he added.

COVID vaccine makers Moderna and Pfizer did not respond to requests for comment.

Dr. Cody Meissner, professor of pediatrics at Dartmouth who co-wrote an editorial with Makary during the COVID pandemic against masks for children, said he agreed with the decision.

He said he felt the U.S. had been overemphasizing the importance of the COVID vaccine for young children and pregnant women, and that previous recommendations were based on politics, adding that the severity of the illness generated by the virus seems to have lessened over time in young children. — Reuters