Federal Reserve spokesperson changes stance: Tariffs suppress inflation but hurt economic growth

The latest report from the Federal Reserve Bank of San Francisco sent a key signal through the mouthpiece Nick Timiraos—tariffs will not push up inflation; instead, they will suppress demand by increasing uncertainty, putting greater pressure on economic growth. This view contrasts with the market’s common concern that “tariffs drive up prices,” and warrants in-depth understanding.

A New Interpretation of the Tariff Transmission Mechanism

Why won’t tariffs push up inflation?

The Fed’s logic is clear but perhaps not immediately intuitive:

• Direct cost of tariffs: Rising import prices seem to push up inflation
• The real impact of tariffs: Increasing market uncertainty, causing businesses and consumers to become cautious
• Demand contraction: People cut back on spending due to uncertainty, businesses reduce investment for the same reason
• The ultimate result: Demand declines lower prices, offsetting the direct cost effect of tariffs

This means the main harm of tariffs is not inflation but slowing economic growth.

The importance of this signal

As the mouthpiece of the Federal Reserve, Nick Timiraos’s statements usually reflect internal policy tendencies. This report indicates:

• The Fed’s concerns about inflation may be easing
• Risks to economic growth are viewed as a greater threat
• Policy focus may shift from fighting inflation to stabilizing growth

Potential Implications for the Market

Insights for the crypto market

Economic growth slowdown generally implies:

1. The central bank may maintain an accommodative stance or even consider rate cuts
2. Risk assets (including cryptocurrencies) might receive liquidity support
3. Short-term market volatility could increase, as uncertainty itself is a risk

From this perspective, the uncertainty caused by tariffs might actually become a liquidity-driven factor.

Personal observations

The key point of this signal is whether the Fed is re-evaluating the true costs of tariffs. If the Fed indeed believes tariffs won’t push up inflation, their policy flexibility increases. However, this flexibility comes at the cost of rising economic growth uncertainty, which is a double-edged sword for all asset classes.

Summary

The report from the Federal Reserve Bank of San Francisco shifts the narrative on tariffs—from raising prices to suppressing growth. This shift is significant because it could change the Fed’s policy priorities. If economic growth risks truly outweigh inflation risks, the liquidity environment might be more accommodative than market expectations, which could be a potential positive for crypto markets. At the same time, this uncertainty itself may increase short-term volatility. Future attention should be on whether the Fed will formally adopt this view in its policy statements.