Unexpected turn: decline in dollar inflation shocks market forecasts amid collapse of tariff revenues

Financial markets received a relief signal: the latest Consumer Price Index showed 2.7%, falling below the consensus forecast by 3.1%. This mood recovery occurred under conditions that seemed quite unfavorable.

Tariff policy did not go as planned

When the administration introduced customs duties in April last year, analysts almost unanimously predicted an increase in dollar inflation. However, the reality turned out to be different. Experts from the Federal Reserve Bank of San Francisco analyzed how importers adapted to the new conditions. It turned out that companies restructured logistics, received customs benefits, and partially shifted the burden of duties onto their own shoulders rather than onto consumers.

Revenues are falling faster than expected

Meanwhile, a different development is happening in the fiscal sphere. Revenue from tariffs plummeted from $34.2 billion in October to just $3.02 billion in December. This decline raises questions about the tax revenues that the federal treasury was counting on.

According to experts’ calculations, the average effective tariff reaches 12% and adds about 0.9 percentage points to the dollar PCE inflation rate. However, the market absorbed 0.4 points of this pressure, which explains why consumers did not feel the full impact.

Fiscal crisis: debt exceeds capacity

The reduction in customs revenues comes at the worst possible time. Initially, the government expected to receive up to $1 trillion from the new tariff regime, but these expectations quickly evaporated. The US budget deficit has already reached $439 billion, and the national debt has surpassed the psychological threshold of $38.5 trillion.

This dynamic creates a paradox: dollar inflation is slowing down, but government finances show the opposite trend. For investors, this means a difficult choice between optimism about monetary policy and concern over the long-term financial stability of the US.