Mark Zandi says tariffs damaged U.S.

Tariffs are taxes on imports. That part is simple. The harder part is figuring out where the damage shows up first — in prices, in business decisions, or in Fed policy. This week, Mark Zandi argued the answer is basically all three. He said the evidence is now “definitive” that the Trump tariffs have done “significant damage” to the U.S. economy, and the rest of the week’s macro headlines fit that story. ### What is Zandi actually saying? Zandi runs economics at Moody’s Analytics, so when he says “damage,” he doesn’t just mean people dislike tariffs in theory. He means the data now show a real hit to growth, confidence, and pricing. The broad argument is familiar — tariffs raise costs for importers, many of those costs get passed through, and companies delay investment when they don’t know what the next trade rule will be. But his point now is that this has moved past forecast and into evidence. ### Where does that damage show up first? Usually in business behavior before it fully shows up in headline economic pain. Firms pull back on hiring plans, delay orders, and sit on cash when trade policy keeps changing. That uncertainty matters almost as much as the tariff rate itself. Austan Goolsbee has been making that point for months — even when courts or politics shift the tariff picture, the stop-start uncertainty can still freeze business decisions. ### Why are Fed officials talking this way now? Because inflation risk has started to look more stubborn than labor-market risk. St. Louis Fed President Alberto Musalem said on May 6 that policy risks have shifted toward higher inflation, with the job market still looking fairly stable, and that rates may need to stay where they are for some time. That is a big tonal shift from a world where the Fed was mainly waiting for clearer evidence to cut. ### What changed in the inflation picture? Oil. The Iran war has pushed energy prices higher, and that bleeds into inflation expectations fast. Goolsbee said the shock is increasingly looking inflationary, with supply-chain concerns and more persistent price pressure even if jobs and growth have not cracked yet. Think of it like a second squeeze layered on top of tariffs — one comes from trade policy, the other from energy. Consumers do not care which bucket the extra cost came from. ### How does oil end up hitting mortgage rates? Through Treasury yields. When investors think inflation will run hotter, longer-term yields usually rise. Mortgage rates follow those yields more than they follow the Fed’s overnight rate directly. That is why housing has started to feel the pressure again. Freddie Mac’s 30-year fixed rate averaged 6.34% in April, up 16 basis points from March, while homebuilder data tied the move to higher yields and rebounding inflation. ### So is this a tariffs story or an oil story? It is both — and that is the catch. If tariffs were easing while oil was calm, the Fed might have cleaner disinflation. If oil were spiking but trade policy were stable, businesses could at least plan around one shock. Instead, policymakers are looking at stacked pressures: tariff-driven costs, war-driven energy prices, and uncertainty that keeps firms defensive. That combination is why “significant damage” lands harder now than it would have a few months ago. ### What matters next? Watch whether inflation expectations keep drifting up and whether business investment data start to weaken more clearly. If that happens, the Fed stays stuck — not eager to hike, but not comfortable cutting either. That is a bad place for an economy already dealing with higher import costs and pricier borrowing. ### Bottom line Zandi’s point is not that tariffs alone broke the economy. It is that they made the economy more fragile — and now a fresh oil shock is hitting that weaker structure. That is why this week’s comments from economists and Fed officials sounded less like abstract debate and more like recognition that the costs are already showing up.