Donald Trump’s declaration that, “I have the right to do anything I want”, didn’t get the attention it deserved.<\/p>\n
And, economists say, a fair chunk of the upward pressure on prices is coming from tariffs.<\/p>\n
“So far there is no evidence that foreign suppliers have absorbed it as import prices to the US are flat to up slightly this year,” AMP’s chief economist Shane Oliver said.<\/p>\n
“But roughly about 0.3 per cent has been added to the CPI as a result of the tariffs.<\/p>\n
“So, some has been passed on but most absorbed by US business.<\/p>\n
“This may be partly due to front running of the tariffs though \u2014 so more impact could still show up,” Dr Oliver said.<\/p>\n
That’s a view shared by Andrew McAuley.<\/p>\n
“Well, we haven’t seen the full impact of tariffs yet,” he said.<\/p>\n
The world’s biggest economy appears trapped between a rock and a hard place.<\/p>\n
The Federal Reserve Chair, Jerome Powell, said as much at the Jackson Hole Symposium on August 22.<\/p>\n
“The downside risks to employment are rising and if those risks materialise, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”<\/p>\n
Stagflation concerns<\/p>\n
The great concern for the US economy is stagflation.<\/p>\n
It’s a term used to describe an economic gut punch: rising unemployment and inflation, and it’s extremely difficult to manage or recover from.<\/p>\n
In this situation, it’s very difficult for a government or central bank to execute any effective policy to resolve the situation.<\/p>\n
An interest rate cut, for example, may help with jobs’ growth, but it would be like pouring fuel onto an inflation fire.<\/p>\n
“The concern is stagflation,” says UBS’s Andrew McAuley.<\/p>\n
“The concern is the cost of business goes up. The cost to the consumer goes up.<\/p>\n
“And we’ve seen that particularly in motor vehicles which is probably ground zero for the impact of tariffs \u2014 Chinese electric vehicles, and the parts for them,” he said.<\/p>\n
<\/p>\n
Donald Trump says the declining value of the green bank is part of his plan. (Getty Images: CFOTO\/Future Publishing)<\/p>\n
Dollar declines<\/p>\n
It’s all taking a toll on the value of the US dollar, which has been steadily declining since Donald Trump took office in January.<\/p>\n
The US dollar index, which tracks the value of the US dollars against a basket of currencies, has fallen from 109.6 in mid-January, to just above 97 now.<\/p>\n
That’s an 11 per cent fall, or a “correction”, in the world’s reserve currency.<\/p>\n
But the US President Donald Trump said earlier this year the declining value of the dollar is all part of his plan.<\/p>\n
“You make a hell of a lot more money with a weaker dollar,” Mr Trump said.<\/p>\n
“Not a weak dollar, but a weaker dollar than you do with a strong dollar.”<\/p>\n
Analysts say Donald Trump’s unease with the value of the dollar has become plain to see.<\/p>\n
“Trump is frustrated by the strength of the dollar in the way that people were frustrated by the strength of the dollar in 1985 as well,” Sahil Mahtani said.<\/p>\n
“And so there is an effort to bring the dollar down.<\/p>\n
“I think that’s the broad context of what’s happening here,” he said.<\/p>\n
For Donald Trump, a weaker US dollar solves many problems, including bringing in more tariff revenue.<\/p>\n
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That’s because more US dollars are needed for the same imports.<\/p>\n
A lower dollar also helps reduce US debt because each dollar of debt is worth less.<\/p>\n
But analysts warn a weaker US dollar adds to already existing inflationary pressures in the economy \u2014 because it lifts the prices of imported goods.<\/p>\n
“Well, some would argue that stagflation is there now,” UBS’s Andrew McAuley said.<\/p>\n
“So the Fed has to really walk a tightrope.”<\/p>\n
Gold in focus<\/p>\n
The US Federal Reserve is not the only one treading carefully.<\/p>\n
<\/p>\n
The price of gold has reached record highs. (Getty Images: Alessia Pierdomenico\/Bloomberg)<\/p>\n
In an increasingly uncertain world, the desire for investors and novices alike to find a safe haven for their money has grown exponentially.<\/p>\n
That’s pushed the price of gold up to record highs and analysts insist the value of the precious metal is only going to increase.<\/p>\n
The price of spot gold is now roughly $US3,700.<\/p>\n
Interest in gold stems from strong central bank demand, and investors moving the commodity into their portfolios to gain exposure to the precious metal as they seek out the most traditional of safe havens.<\/p>\n
The latest rise to dazzling gold heights has those responsible for billions of dollars in investment funds quite nervous.<\/p>\n
“It’s telling me that there is a concerted effort to diversify away from currencies, and particularly the dollar,” Sahil Mahtani said.<\/p>\n
“And so I think there is a flight away from positions that were built up over the last 15 years.”<\/p>\n
That “flight’ of money has also caught the attention of Australia’s Reserve Bank, and its chief economist, Sarah Hunter.<\/p>\n