This episode explores the potential economic storm clouds on the horizon, particularly concerning the impact of tariffs and the possibility of stagflation. Against the backdrop of escalating trade wars and unpredictable global stock markets, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, discusses the risks associated with tariffs, emphasizing that their impact extends beyond a simple one-time cost increase due to retaliation and supply chain disruptions. More significantly, the discussion highlights the uncertainty-induced paralysis among businesses, particularly in the auto industry, hindering investment and economic growth. For instance, Goolsbee cites an auto executive's reluctance to invest in the next six months due to unpredictable rules. The conversation then pivots to the "stagflationary impulse," acknowledging that while current inflation and unemployment rates are lower than in the 1970s, the direction is concerning. Finally, the concept of the "freakout channel" is introduced, illustrating how anxieties about tariffs can lead to irrational behavior like stockpiling, further complicating the economic situation. This means that while the current economic situation is relatively strong, the uncertainty caused by tariffs poses a significant risk.
