This is the Cato Daily podcast for Monday, April 7th, 2025.

I'm Caleb Brown.

The Fed has been fighting inflation for years.

Now enter a massive imposition on American consumers known as tariffs.

That will mean relatively fewer goods, higher prices, and impacts that the Fed can't do a whole lot about.

Cato's Jay Kedia explains why the Fed can't bail out the American consumer from the massive new costs created by this very bad, no-good trade policy.

When the president and Congress engage in mischief, economic mischief, that is, there are many

situations where the Fed can step in and stop it. There are policies that are inflationary,

have substantial employment effects, and the Fed can speed those up, slow them down,

in some cases reverse them with a Fed policy change.

Give me an example of that.

Well, normally this would be something that's an exogenous shock, usually, you know,

demand or supply shock. So if we have

a positive demand shock, what that means is that people are overspending. And because of that,

there's not enough goods to meet all the, all this money, the money that's certainly out there

for people to buy things with. So the Fed tries to slow that down by essentially increasing the

cost of funds. And that brings the market back down

and reduces inflation. That's basically what we saw post-COVID because you had all these

spending checks, people getting checks in their hands. And the Fed had to increase the interest rate

to slow down the rate of spending and bring inflation back under control.

We are recording the day after Donald Trump's so-called Liberation Day,

in which massive new tariffs varying widely by country based, it seems exclusively,

...