Voila!

The Fed has started to understand they might need to lower interest rates irrespective of their views on the economy. So they have started to document their epiphany. In the chart below, you can see a study by the Federal Reserve of San Francisco, where the review 150 years of tariff data an conclude that tariffs are in fact deflationary, and they end up increasing unemployment. The top part of the chart refers to the period where tariffs are enacted, and the bottom part shows what happens one year later. The left part refers to inflation and the right, to unemployment. Visually, you can see it clear: you have a framework that allows you to safely lower rates, because you’re protected by disinflation, and in fact you need to act soon because the labor market deteriorates quickly. It’s highly likely that some Fed governors will refer to this study in their frequent speeches and it may be discussed in the next FOMC meeting. Odds for a cut in December should start to climb back.

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