A heated debate has erupted within the Trump administration, with a senior economic advisor calling for disciplinary action against Federal Reserve economists. The controversy stems from a recent study by the New York Federal Reserve, which found that US firms and consumers have been disproportionately affected by the president's tariffs. The report, deemed an 'embarrassment' by National Economic Council director Kevin Hassett, concluded that 90% of the tariff costs were borne by US companies and shoppers. This finding has sparked a new front in the ongoing battle between the Trump administration and the Federal Reserve, which has previously been centered on interest rates. Hassett's comments to CNBC suggest a shift in focus, as he argues that the report's conclusions are highly partisan and not scientifically sound. The New York Fed has remained silent on the matter. However, the study's findings are supported by other recent analyses. The Kiel Institute for the World Economy and the National Bureau of Economic Research have also found significant 'pass-through' of tariffs to US import prices, indicating that the US is shouldering the burden of increased costs. This legal and economic dispute has intensified as Trump faces challenges from small businesses and US states, who argue that his tariffs exceed presidential authority. The Supreme Court's decision on the case is expected as early as this Friday. The Trump administration's criticism of the Federal Reserve comes at a time of heightened scrutiny. Federal prosecutors are investigating Jerome Powell, the central bank's chair, over his testimony regarding Fed building renovations. Additionally, the president has targeted Fed governor Lisa Cook, expressing a desire to remove her from her position. The Fed's interest rate decisions have been a focal point of Trump's criticism, with the president urging the bank to lower borrowing costs more aggressively. The recent cooling of inflation in the US, attributed to falling energy and used car prices, has further fueled Trump's arguments. However, analysts caution that the Fed's progress towards its 2% inflation target may be hindered if companies pass on tariff costs to consumers. The minutes from the Fed's January meeting revealed a divided stance among officials regarding interest rate adjustments this year, with some even warning of potential rate hikes if inflationary pressures persist. This internal discord within the Fed adds another layer of complexity to the ongoing tensions with the Trump administration.
