Name: Macro Matters: 'Affordability stress' to persist | REUTERS
Uploaded: 2026-01-22T17:19:53.000Z
Duration: 5 min 33 s
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The latest tariff threat has been lifted.

This is macro matters and we're talking about tariffs.

Markets exhaled after President Trump unveiled a framework to end the Greenland standoff.

But investors are left with a familiar question.

The immediate risk may have faded, but the uncertainty hasn't.

And with trade policy still weaponised and old targets like the Fed never far from view, markets are once again reminded that under Trump, no deal is ever truly final.

Gregory Dacko is chief economist at EY Parthenon.

So Gregory, the immediate threat of an all out trade war with the EU has been de escalated.

But how damaging is persistent trade uncertainty to business sentiment even if tariffs aren't actually imposed?

Yeah, I think the combination of still elevated tariffs imposed by the US on the rest of the world, along with the trade policy uncertainty are detrimental to business activity.

We've seen essentially that the increase in the US average tariff rate from 2 and a half percent at the end of 2024 to around 16 and a half percent at the end Of 2025 has hurt economic activity around the world.

We continue to see policy uncertainty being a key disruptor to business investment.

And let's not forget that there is still a pass through of higher tariffs onto consumer prices, which is eroding consumer spending power.

So all of these factors are still likely to weigh notwithstanding the ongoing uncertainty and volatility around trade policy.

Well, the Supreme Court is heading into a four week recess without ruling on the legality of tariffs.

Does a delayed decision increase the economic risk, particularly if the Trump ruling doesn't actually go his way?

Well, I think generally speaking we still have an environment in which businesses are adapting to uncertainty being the new normal.

The ruling on the legality of using emergency powers to impose tariffs is still up in the air.

And that ruling would affect the average tariff rate.

It could potentially lower the US average tariff rate from 16.5% down to 9%, which would offset part of the drag that we've been seeing on economic activity.

But let's not forget the administration also has other options to impose tariffs should these emergency powers tariffs be ruled out, including section 122 which allows for 15% tariffs and to be imposed for 150 days.

We think that would be the course that the administration would follow should these tariffs be ruled out.

Most economists believe that inflation is largely under control.

But recent research suggests that American consumers still bear almost all the cost of the tariffs.

Could we see a renewed uptick in inflation Pressures?

Yeah, I think we've seen a gradual and uneven pass through of tariffs onto consumer prices.

Businesses have been trying to compress their margins in an effort to limit their pass through to consumers.

But there is really a limit as to how long this can go on for.

And we expect to see ongoing tariff pressures pressuring up consumer price inflation in the US towards 3%.

We think 3% will likely be the range for the first half of 2026 when it comes to inflation.

With inflation only gradually fading back towards 2.5% by the end of the year, this will continue to create affordability stress for many households across the US and limiting their spending power as we navigate through the year.

Well, the latest revised data showed that the US Economy grew slightly faster in the third quarter.

And Trump as well saying that the US Is the hottest economy in the world.

Do you think that this pace of growth is sustainable?

Well, I think what we're seeing when we look underneath the surface is an economy in the US that is still quite robust.

We're seeing growth trending around 2 1/2 percent.

When you look at the year over year pace as of the third quarter of this year, the narrow foundation to growth is something that we have to be very careful about.

We're currently seeing a US Economy supported by three A pillars, affluent consumers, AI investment and after price appreciation.

They are forming a virtuous cycle right now.

But there are risks that if any one of these pillars start to become more fragile, we could see a much slower US economy over the course of the next 12 to 24 months.

Well, Trump's search for a new Fed chair is becoming a hunt for an elusive unicorn candidates as Blue Black from his attacks on the central bank complicates the decision.

How does this tension play out for the path of easing this year?

Well, I think generally speaking, the Fed has an unusually complicated landscape to navigate, including political pressure from the administration and an economic environment that is difficult to read.

With a jobless expansion but no significant increase in the unemployment rate, we think the Fed will still proceed with about 50 basis points of easing over the course of 2026.

But the first rate cut is unlikely to come before mid year this year.

Finally, Gregory Ray Dalio says that global investors, especially central banks, are diversifying away from U.S. assets.

Do you see this trend emerging and what would that mean for the US Economy?

We are seeing diversification out of US Dollar denominated asset holdings.

But but that does not mean that the US Dollar is losing its reserve currency status.

What we are seeing is central bank institutional investors and some retail investors favoring commodities, favoring gold and silver as a hedge against just pure US dollar denominated asset holdings.

That does not mean again that the US is about to lose its reserve currency status.

That was Gregory Tacko from EY Parthenon.

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