Trump policies may only have limited impact on inflation, says former Fed chair Bernanke

Bernanke said that the policies set out by Trump may not necessarily cause a major shift in inflation dynamics. He argued that:

“I agree Trump policies, whatever their merits on public-finance grounds, probably will be modest in terms of their effect on the inflation rate. Barring some very unusual situation, including geopolitical risks, it doesn’t seem it is really going to shift the inflation path radically.”

Adding that the tax cuts that Trump wants to pursue are already pretty much in place. The main issue though is tariffs, as it is uncertain if Trump will use that for bargaining on trade or will want to keep them permanently. Bernanke says that import tariffs will reduce output and raise inflation, so that will put the Fed in a tougher spot to respond.

Well, Trump tariffs remain one of, if not the biggest known unknowns in markets at the moment. And that’s going to be a key influence for Fed policy in the months ahead. So, we’ll have to wait and see how he wants to play that out. Big boss man.

This article was written by Justin Low at www.forexlive.com.