Trump's tariffs may wreck your holidays — expert warns of a major inflation spike by year-end
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If you intend to spend a lot of money this holiday season, brace yourself. A top Wall Street economist has warned that Donald Trump's new tariffs could send prices skyrocketing by the end of the year. From gifts to groceries, Americans may soon feel the pinch, and the Fed may have no easy solution.According to Apollo's chief economist, Torsten Sløk, Trump's tariffs will likely lead to a significant increase in inflation The president announced sweeping tariffs this year, and Torsten Sløk said he believes they will drive up prices until inflation peaks in November or December.As prices rise and growth slows, he warns of stagflation, a worst-case scenario that could postpone Fed rate cuts and affect American households until 2025 or later.In an interview with Bloomberg this week, Sløk cited consensus inflation expectations that indicate inflation will increase during the final two months of the year.He added that consumer goods are already beginning to "lift-off" from inflation. June saw a 0.7% year-over-year increase in durables prices, the second consecutive month of growth following more than two years of annualized declines, according to the most recent consumer price index report.Also, the headline figure increased, rising from 2.4% in May to 2.7%, as per a report by Business Insider.Slk predicted that services inflation, accounting for 60% of the CPI, would likely accelerate in the near future.He also projected that, depending on the status of tariffs in June, the unemployment rate might increase over the next two years, while inflation might stay at about 3% throughout 2025.Donald Trump's mass deportations have a negative effect on wage growth, which increases employment costs for businesses and may lead to price increases, he said. "They must wait in order to witness the peak. And in terms of the Fed and inflation, we have essentially only reached the take-off stage," he stated.Sløk stated that rising inflation portends bad news on two fronts. Interest rate reductions from the Fed are unlikely. He stated that before making a more significant monetary policy easing move, central bankers will want to evaluate the maximum harm caused by Trump's tariffs.The onset of a stagflation shock could be imminent. Sløk previously wrote to clients that he thought the US was already experiencing a stagflation shock, which is a scenario in which inflation increases while economic growth slows.Stagflation is one of the worst possible outcomes for the economy, according to economists, because the Fed cannot lower interest rates to spur economic expansion without escalating inflation.A recent whitepaper by Sløk estimated that stagflation could cause GDP growth in 2025 to more than halve from its peak last year, as per a report by Business Insider.By late 2025, inflation is expected to peak in November or December.Unlikely. The Fed wants to wait to see the full impact of the tariffs.
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