The Chip Shot Heard Round the Fed

Internal Monologue of a Central Banker, Friday Evening

Another week, another presidential edict that makes my job exponentially harder.

I'm sitting here watching the NASDAQ flash red after Trump dropped his 100% semiconductor tariff bomb, and I can't help but think about the elegant irony of it all. For months, we've been threading the needle on inflation expectations, carefully managing markets with our measured dot plots and perfectly calibrated forward guidance. Two cuts by year-end, maybe, we signaled. Measured. Prudent. Data-dependent.

Then Thursday happens.

Markets closed mixed as investors tried to digest Trump's chip tariff plans, which is Wall Street speak for "nobody has any damn clue what this means but we're all pretending we do." The President announces he wants to double the cost of importing semiconductors unless companies build in America. Fine policy goal, I suppose. But the timing? The methodology? The complete lack of consideration for what this does to our inflation calculus?

Deep breath.

Let me walk through what just happened to my carefully constructed monetary policy framework. We've been watching services inflation like hawks, knowing that the services sector represents 71% of GDP and any persistent price pressures there could derail our entire disinflationary narrative. We've been modeling gradual cooling, planning for orderly rate cuts, building credibility through consistency.

Now I have to explain to markets why a 100% tariff on the foundational technology that powers literally everything might be slightly inflationary.

The numbers are staggering when you really think about it. These tariffs will generate $165.6 billion in federal revenues - the largest tax increase since 1993. Every time someone buys a phone, a car, a washing machine, a medical device, they'll be paying this tax. Every business buying servers, networking equipment, industrial controls - tariff tax. Every manufacturer trying to compete globally while paying double for chips - tariff tax.

And here's the kicker: Apple already secured an exemption with a promise of $100 billion in U.S. investment. So we've got a two-tiered system where the companies with the best lobbyists get to play by different rules while everyone else gets crushed. Market distortion 101.

Another sip of coffee, staring at inflation models that are now completely useless.

The really maddening part? I know exactly what's going to happen next. Markets will initially panic about the tariff impact, then rally on hopes that somehow this will all get sorted out with exemptions and carve-outs. Meanwhile, actual businesses will start passing these costs through to consumers within months. The inflation data will start heating up by Q4, just as we're supposed to be cutting rates.

I've already warned that tariffs are "highly likely" to push inflation up, but apparently that wasn't clear enough. Maybe I should have tried interpretive dance.

The semiconductor supply chain is mind-bogglingly complex. TSMC doesn't just flip a switch and start manufacturing in Arizona overnight. Samsung's Austin fab can't suddenly quadruple output because the President wants it to. Intel's Ohio project won't be fully operational for years. But somehow we're supposed to believe that threatening to double import costs will magically create domestic capacity?

Looking at the clock: 9:47 PM. Markets open in Asia in a few hours.

You know what the most frustrating part is? This could actually work as industrial policy if implemented gradually with clear exemptions and transition periods. But financial markets hate uncertainty above all else, and this maximizes uncertainty. Experts say the President has yet to provide key details on the policy - which means every business with chip exposure is now trying to model scenarios ranging from "minor supply chain adjustment" to "complete industry reshuffling."

Meanwhile, I've got a FOMC meeting in three weeks where I'm supposed to provide forward guidance on interest rates when the entire inflationary outlook just got thrown into a blender set to "chaos mode."

Phone buzzes with a text from the Richmond Fed President: "We still doing two cuts this year?"

I stare at the message for a full minute before responding: "Ask me after the semiconductor tariffs get sorted out."

Or maybe I should just start every press conference with: "Our outlook depends on how many industries the President decides to revolutionize via Twitter this week."

Closes laptop. Pours another coffee. Wonders if it's too late to go back to academic economics.

The funny thing is, the Nasdaq 100 hit all-time highs this week before the tariff news hit. Tech stocks were on fire, sentiment was bullish, everything looked like it was settling into a nice, predictable pattern.

Now? Now I get to explain to Congress why inflation might accelerate even as we cut rates. Why the strongest sector of the economy might suddenly face margin compression. Why our models no longer make sense.

Stares out the window at the Eccles Building, where better central bankers than me have navigated worse crises.

At least Volcker only had to fight inflation. He didn't have to fight inflation while the fiscal authority was simultaneously pouring gasoline on the fire via Twitter.

Two cuts this year?

We'll see.

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The views expressed in this internal monologue are fictional and do not represent the opinions of any actual Federal Reserve officials, who are far too professional to express such thoughts publicly.