Sign up for the Marketplace newsletter to get the day's biggest business stories, our economic analysis, and explainers to help you live smarter, straight to your inbox every weekday evening.
President-elect Trump has threated to put a 25% tariff on all imported goods from Canada and Mexico starting day one of his second term. And while there's still a lot of uncertainty over whether the tariffs will actually go into effect, assume for a moment they do: would the Federal Reserve, operating under the mandate of stable prices, have to get involved?
"Tariffs affect the prices of some goods a lot more than others," said Carola Binder, an economist at the University of Texas at Austin. "But the Fed doesn't respond to relative price changes or to the price of a particular good rising. They respond to aggregate price changes."
"If, somehow, they were to lead to persistently higher inflation, the Fed would want to respond to that," said Binder in an interview with "Marketplace" host Kristin Schwab. "Personally, I'm a little reluctant to try to forecast what the effects would actually be."