Economists warn tariffs could trigger stagflation and raise prices amid market chaos

In a recent meeting of the U.S. House Committee on Financial Services, concerns about the impact of tariffs on the economy and the stability of financial markets took center stage. Lawmakers expressed alarm over the volatility in the stock market, which has left many Americans, particularly retirees, anxious about their investments. One committee member shared that constituents have reported significant losses in their 401(k) accounts, highlighting the personal toll of economic uncertainty.

Experts at the meeting discussed the implications of rising tariffs, which they described as a substantial tax increase on imports. This increase is contributing to market chaos, with rising prices and a steepening Treasury yield curve indicating higher corporate borrowing costs. The experts warned that these factors could lead to a stagflation scenario, where inflation rises alongside stagnant economic growth.

The independence of the Federal Reserve was also a critical topic. Concerns were raised about political pressures on the Fed, particularly following comments from the President urging the Fed to cut interest rates. Experts emphasized that a lack of independence for the Fed could exacerbate inflation and complicate efforts to stabilize the economy. They pointed to international examples, such as Turkey, where undermining central bank independence led to soaring inflation rates.

The discussions underscored the interconnectedness of tariffs, market stability, and monetary policy, with experts urging caution and a focus on maintaining the Fed's independence to navigate the current economic challenges. As the committee continues to address these issues, the implications for American households and the broader economy remain significant.