The Federal Reserve System's credibility is at stake as its researchers face scrutiny over a controversial report. Kevin Hassett, Director of the National Economic Council, has taken a strong stance against a study conducted by New York Federal Reserve researchers, claiming it misrepresents the impact of President Trump's tariffs on American businesses and consumers. Hassett's criticism centers around the study's methodology, which he deems flawed and biased, despite the researchers' efforts to maintain independence from political influence.
The report in question, accessible at https://libertystreeteconomics.newyorkfed.org/2026/02/who-is-paying-for-the-2025-u-s-tariffs/, suggests that American businesses and consumers bear 90% of the tariff costs. Hassett's reaction was swift and harsh, labeling the paper as the worst in the Federal Reserve's history. He believes the researchers should be disciplined for their findings, which he claims are highly partisan and not up to par with basic economics.
However, the New York Fed and the Fed Board of Governors have not responded to CNN's inquiries regarding Hassett's comments. The researchers' work, Hassett argues, only considers price-related effects and ignores changes in import volume, which is a critical aspect of the tariff's impact. Yet, the authors of the study do account for import volume in their calculations, defining it as the total monthly tariff revenue divided by the total value of imports. They specifically analyzed how global supply chains responded to the increased tariffs.
The Federal Reserve's researchers strive for independence, ensuring their work remains free from political interference. Their studies provide valuable insights for policymakers, aiding in informed decision-making about the economy's present and future. However, Hassett's criticism highlights a potential tension between political influence and the integrity of the Federal Reserve's research.
This controversy comes at an interesting time, as Kevin Warsh, a former Fed Governor and a vocal critic of the Fed and Powell, has been nominated to replace Jerome Powell as Fed Chair. Warsh's confirmation would mark a significant shift in the Fed's leadership, potentially impacting its independence and decision-making processes. The Trump administration's recent attacks on the Fed's independence, including a criminal inquiry and an attempt to fire a Fed Governor, further underscore the challenges the central bank faces in maintaining its autonomy.
