People walk towards Goldman Sachs in New York, US, on Thursday, July 6, 2023. Photographer: Michael Nagle/Bloomberg 
“The inflationary effect happens more quickly, judging from history,” Morgan Stanley’s economists said. The model indicates a 0.9 percentage point bump up in the PCE price gauge — the Federal Reserve’s preferred index — over four quarters.
As for economic growth, the higher tariffs would crimp investment spending as well as consumption, offsetting a positive impact to gross domestic product from lower imports, according to the bank. GDP growth would decelerate by 1.4 percentage point “over several quarters,” the bank said.
Direction ‘Clear’
Monthly US payroll gains would fall by 50,000 to 70,000, the bank’s model showed. So far this year, payrolls have averaged 184,000 in increases a month.
“The magnitude of the economic effect” of the tariff increases will depend on the details, Carpenter and his colleagues wrote. Those include the ultimate scale of the hikes, their timing, possible retaliation by trading partners and the reaction of the currency market. “But the direction of travel is clear.”
Trump campaign adviser Brian Hughes said that Wall Street forecasts are emulating those of 2016 that predicted Trump’s policies would result in lower growth and higher inflation, after which the economy “outperformed these opinions.” Hughes said Trump’s policies “then — as now — will fuel growth” and drive down inflation.