The Hutchins Roundup brings the latest thinking in fiscal and monetary policy to your inbox. Have something you'd like us to include in the next Roundup? Email us and we'll take a look.
This edition was written by Sarah Ahmad, Tristan Loa, Andrew Rosin, and David Wessel.
Gita Gopinath of Harvard and Brent Neiman of the University of Chicago estimate the effect of the 2018-2019 and 2025 tariff increases on U.S. import costs, the composition of U.S. imports, and the value of the U.S. dollar. The authors first identify a large gap between the statutory tariff rate (27.4%) and the actual tariff rate (14.1%). Pass-through of tariffs to U.S. import prices is high–amounting to 80% in 2018-2019 and 94% in 2025–meaning that the costs of tariffs are largely borne by the U.S. rather than by exporters. As tariffs on goods imported from China increased sharply, however, the share of U.S. imports from China fell from 22% in 2017 to 8% in 2025, while U.S. imports from India and Vietnam increased. The authors also estimate that tariffs on intermediate goods have raised production costs for U.S. manufacturers, effectively increasing the tax rate on domestic production by over 1 percentage point. While the U.S. dollar appreciated during the 2018-2019 tariff episode, the dollar depreciated in 2025, which the authors attribute primarily to related macroeconomic forces such as interest rate cuts.
The convenience yield of a U.S. Treasury security—the additional value arising from its liquidity, safety, and use as collateral—is higher when Treasuries serve as a stronger hedge for the equity market. Decomposing Treasuries of different maturities into the risk-free rate, credit spread, and convenience yield from 2005 to 2024, Viral V. Acharya and Toomas Laarits of New York University find that after President Trump’s Liberation Day tariff announcements in April 2025, 10-year Treasury prices moved in the same direction as equities, indicating a deterioration in their hedging properties that could account for roughly a 12 basis point decline in the 10-year convenience yield. In contrast, short-term Treasuries maintained their hedging property, with their convenience yields rising following the announcement. Using Treasury International Capital System data, the authors find that this deterioration in hedging coincided with withdrawals from long-term Treasuries in favor of short-term Treasuries and gold.
Constructing a dataset from Federal Open Market Committee transcripts from 1966 to 1990, Cooper Howes of the Federal Reserve Board and co-authors find that disagreement among committee members is not driven by differences in macroeconomic forecasts or policy rules. Instead, persistent differences in how policymakers expect monetary policy to affect inflation versus real activity—reflecting differing views of the inflation–output tradeoff—play a central role in shaping disagreements over the appropriate policy path within meetings. Although underlying disagreement is common, the Chair plays an important role in building consensus: the committee's final decision almost always tracks the Chair's preferred rate change. Formal dissent is rare, likely because members who dissent lose some of their ability to influence future decisions, the authors say.
“I think the theme for 2026 will be 'waiting for clarity.' Currently, we are receiving divergent signals on growth and the labor market. Gross domestic product (GDP) growth has been very strong, with third quarter real GDP growth coming in at an above-trend 4.3%, with continued strong consumption. But this growth is happening against the backdrop of a slowing labor market," says Anna Paulson, President of the Federal Reserve Bank of Philadelphia.
"Payroll growth has fallen substantially and the base for job creation has narrowed. Nearly 90% of net private job creation through November of last year occurred in a single sector: healthcare and social assistance. In the ADP data, we see other evidence of uneven performance: Firms with 250 or more employees added workers between August and November, while smaller firms shrank.
I see the broad deceleration in the labor market as stemming from both supply and demand factors. On the supply side, the sharp drop in immigration has slowed the growth of labor supply. On the demand side, firms tell us that uncertainty is holding back hiring as they consider a range of factors, including trade policy and the potential for artificial intelligence to transform the need for workers. They also point to over-hiring during the pandemic recovery as a restraint on labor demand. I expect that monetary policy restrictiveness is also playing a role. On net, the slowdown in demand appears to have outpaced the slowdown in supply, with the unemployment rate up to 4.6% in November, about a half a percentage point above the range that prevailed through July of last year.
While the labor market is clearly bending, it is not breaking. We can see this in the unemployment insurance claims data. Initial claims have been essentially flat over the last year. Still, labor market risks have risen and that has been an important factor in my support for the 75 basis points of cuts that the FOMC did last year. I will be monitoring labor market developments closely.”
Call for papers
We are seeking proposals for papers on the municipal bond market and state and local fiscal policy to be considered for the Municipal Finance Conference to be held in-person Tuesday, July 21, 2026 and Wednesday, July 22, 2026 in Washington, D.C.
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
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