The Triple Inflation Threat

Tariffs, political pressure on the Fed and policy-driven labour shortages threaten to drive above-target US inflation even higher. For investors, real assets like gold can feel like inflation ‘safe havens’. But a more effective hedge could be hidden in plain sight.

20 October 2025

From a macroeconomic perspective, high inflation remains one of the biggest threats to the outlook, not least because there are currently no fewer than three potential sources of overheating today.

The first and most obvious remains tariffs. Those who subscribe to the TACO (Trump Always Chickens Out) theory are failing to acknowledge that US tariffs are much higher than they were a year ago. Even though we don’t know how high tariffs will be in a year or even a week (!) from now, the US administration’s attempt to re-imagine global trade is actively reaping huge revenues for America. Customs duties are now bringing in nearly USD 30 billion per month and have brought in around USD 165 billion this year to September. It is true that price rises from tariffs have been slow to reveal themselves, but a cursory look at the inflation breakdown reveals a subtle but gradual rise in core goods inflation, from -0.4% growth in mid-2024 to +0.3% at the latest reading in August.

The second potential source of inflation is the US administration’s pressure on the Federal Reserve (Fed) to cut interest rates. Clearly, with headline consumer price index (CPI) inflation at 2.9% (0.9% above the officially mandated target), it could be argued that the Fed is already ignoring inflation anyway. But the White House still wants rates to be cut aggressively from here in an effort to boost the economy and reduce the cost of servicing the deficit. But in an economy that is already facing pricing pressures, it seems counterintuitive to stimulate demand at this point.

The third source is one that is not as widely covered, specifically the inflationary impact of the recent migration crackdown. Although hard to quantify precisely, lower migration could push up prices from here as companies struggle to recruit workers in an already-low unemployment environment. According to the Census Bureau, the dependency ratio (of people under 18 and over 64 per 100 people aged 18-64) will go from just 64.1 in 2023 to 69.5 by the year 2030 if there is zero migration, and to nearly 100 by the year 2100. This would equate to one dependent for every working age person. Services inflation is already running at 2.2% and is the most sensitive to availability of migrant workers.

For investors, all this should get them thinking about what kind of assets will hedge against inflation. Real assets like gold are classic responses against price rises but perhaps the most effective hedge is hidden in plain sight – US equities, whose earnings have kept pace with inflation for decades.

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