00:00 Spokesman a
You, of course, along with everyone else, follow the effects of tariffs here in the United States and globally. Um, we know there is a lag, uh, because when and how the rates were created. This is something that President Powell is talking about. What is your opinion on when will we start seeing it more and will this effect be maintained?
00:34 Carpenter
Yes, I know. This is a key, key issue here, so we tried to do a lot of work, looking at what happened in 2018, for example, looking at everything we can get out of, by looking at changes in supply chains. It seems, in macro sense, it’s about three, four months after the tariffs is applied, you start to see it in the inflation data and then it’s probably two, maybe three -quarters, until you start seeing the effects of tariffs that reduce economic growth. If you remember in 2018, uh, when President Trump was previously president, the tariffs for China were imposed in the second half of 2018. We saw some disturbances in production, as two -thirds of what we import from China are either capital goods or intermediate goods that enter the US production. So tariffs are just taxes on US production. We have seen that production and industrial production are beginning to fall in the second half of 2018 and we continue to fall for 2019. So where are we this time? Well, we know that we have just received some inflation data for June and it seems that most of the tariff categories have begun to show this pickup. So it’s kind of like a three or a four -month back that we had in mind. So we expect, uh, inflation data will continue to show an increase in tariff sensitives, uh, categories for the next few months, indeed, uh, pushing inflation for the third quarter quite in particular. And then, you know, the fourth quarter, we will probably see a big drag on the economy coming from the tariffs increased by the drag, which makes the immigration restriction. So we see everything playing in the data now as we thought.
03:21 Spokesman a
And so set, it means that the people on the street who were waiting for a Fed to reduce the percentage, they may be disappointed for a while, not to mention the president himself.
03:42 Carpenter
Yes, I think it’s right. Our main case, after announcing the tariffs that came faster, bigger, earlier than we originally thought, all of them really entered the beginning of the year, we changed our forecast. We said that if this is the way it will work, the Fed is unlikely to reduce interest rates throughout this year in 2025. The logic is and is very compatible with what, uh, said President Powell yesterday, inflation is still above the target, and the labor market is just good for now. And so there is no reason to shorten the Fed under the circumstance. If inflation goes higher than here, well, it gives them even more reason to stay where they are with politics slightly restrictive. And even if and when we start to see some deterioration of the economy, some labor market slowdown, if inflation is still high and increases at this point, the percentage bar must deteriorate, as inflation increases. So this year we come to the idea that they probably won’t reduce tariffs. Uh, the market was in a completely different place from us, uh, a month ago, two months ago, judging from where things are now, the market puts a little less than even the chances of reducing in September, reducing expectations for redundancies this year. Uh, I would say that the market comes in the same opinion we have.
05:57 Spokesman a
Um Seth, something like this like a case, I know you are looking at car and automatic prices that have not seen something like a tariff effect. Hmm, so could you translate us through this, just as an example to illustrate how they get these backlogs and effects?
06:33 Carpenter
Absolutely. Now the automotive industry is a great exception, which proves the rule in this case. Oh, this is an industry very, very large and yet dominated by a much smaller number of companies. And what we think we hear anecdotally and possibly see in the data is that for now some of the bigger companies are waiting. They absorb some of the expenses in their margin until they get a better sense of exactly where these rates will end. It also makes sense that they can wait and see if you know, maybe they can take some market share, uh, because, um, you know, other other companies are facing higher costs. And if you can keep your prices for a while and take some market share while the rest of the industry is suffering, then this is another opportunity. So I think the automotive industry is about a little pain now regarding the absorption of expenses in margin that cannot continue forever. And so we expect these prices and cars to start appearing over the next few months, perhaps a little more than a delay than the rest of the economy.