What Do Donuts Have to Do with the Economy?
The effects of tariffs on the economy can be seen even in a donut shop. Chicago Federal Reserve President Austan Goolsbee recently visited Mel-O-Cream Donuts in Springfield, Illinois, to learn more about how these tariffs are impacting local businesses. Goolsbee pointed out that donuts seem like a very local product, but they actually rely on some ingredients that come from overseas, such as palm oil from Indonesia. The Trump administration has set a 19% tariff on Indonesian imports, which can have a significant impact on businesses like Mel-O-Cream Donuts.
The Impact of Tariffs on Local Businesses
Chris Larson, a co-owner of Mel-O-Cream Donuts, estimated that the new tariff will cost his business around $4,000 per shipment per week. This is a significant increase from the previous cost of $2,000 to $2,100 weekly. Goolsbee noted that this increase could have a multi-thousand-dollar impact on the operation of Mel-O-Cream Donuts. However, he also expressed hope that this is not a sign of a broader economic issue.
The Role of the Federal Reserve
Goolsbee’s visit to Mel-O-Cream Donuts is significant because he is one of the 12 people who get to decide what to do with interest rates. The Federal Reserve’s rate-setting committee will next meet on September 17 to decide whether to cut or hold interest rates. The perspectives of businesses like Mel-O-Cream Donuts are crucial in helping Goolsbee make his decision. Larson hopes that the Federal Reserve will cut interest rates, which would help his business finance new equipment and cut costs in labor.
The Current State of the Economy
Government data recently showed that wholesale prices paid by U.S. companies rose more than expected. The consumer price index also showed that inflation remained high in July. The Federal Reserve’s target for inflation is 2%, which is lower than the current rate of 2.7%. Despite this, the market still anticipates a cut in interest rates next month. President Donald Trump’s tariffs on hundreds of trading partners around the world could affect the cost of most imports that businesses buy from overseas.
The Federal Reserve’s Decision-Making Process
Goolsbee emphasized that the Federal Reserve’s decision-making process is driven by economic conditions and outlook, not politics. He noted that the Federal Open Market Committee (FOMC) takes its role very seriously and keeps track of every word said at its meetings. The FOMC’s goal is to maximize employment and stabilize prices, which is why it is so important for the committee to consider the perspectives of businesses like Mel-O-Cream Donuts.
Conclusion
In conclusion, a donut can tell us a lot about the state of the economy. The effects of tariffs on local businesses can be significant, and the Federal Reserve’s decision-making process is crucial in determining the direction of the economy. As Goolsbee noted, the Federal Reserve’s goal is to maximize employment and stabilize prices, and it is essential for the committee to consider the perspectives of businesses like Mel-O-Cream Donuts. By understanding the impact of tariffs on local businesses and the role of the Federal Reserve, we can better navigate the complexities of the economy and make informed decisions about our financial future.
