Prudential: Once the announced tariff measures take effect, the U.S. inflation rate is expected to rise by 1 percentage point
Prudential expects that once the announced tariff measures take effect, they will lead to a 1 percentage point increase in the U.S. inflation rate and a 1 percentage point decrease in GDP. The company pointed out that erratic tariff policies could trigger market turmoil and have potential impacts on economic growth. Prudential believes that businesses may not fully pass on the increased costs to consumers, especially when consumers are facing stagnant wages and declining savings. The Federal Reserve will pay attention to the impact of tariffs on the economy and may tolerate one-time price increases
According to the Zhitong Finance APP, PGIM Fixed Income commented on tariffs, stating that it had already warned that there might be issues with the implementation sequence of the Trump administration's policies. As the new week begins, the market has once again been impacted by news of the United States imposing tariffs on Mexico, Canada, and others. These tariff measures seem to take precedence over growth-promoting policies such as corporate tax cuts and regulatory easing. Once the announced tariff measures take effect (currently, tariffs on imports from Mexico and Canada will be delayed by one month), it is estimated that the U.S. GDP will "statically" decline by 1 percentage point, while the inflation rate will rise by 1 percentage point.
PGIM views the potential impact as "static" due to several mitigating factors regarding inflation. First, the "static" estimate does not consider substitution effects, which may be quite significant under the announced tariff scheme. Second, these estimates also do not take into account actual inventory levels, which are currently about 3-5% higher than pre-pandemic levels (excluding automobiles). Finally, faced with profit compression, companies are unlikely to pass on most of the increased costs to consumers, especially as consumers are already facing pressures such as reduced working hours, stagnant wages, and declining savings.
PGIM stated that volatile tariff policies could cause widespread market disruption and bring potential shocks. Moreover, this uncertainty may offset some of the economic growth benefits from policies in the coming months. Therefore, it is expected that the Federal Reserve will closely monitor the potential impact of tariffs on economic growth and may tolerate one-time price increases. In the face of inflationary pressures, the Federal Reserve may emphasize to the market that current policies remain restrictive and maintain a wait-and-see attitude regarding tariff issues