Rogoff Sees US Dollar Weakening Amid Trump Tariffs

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00:00One of the things markets love, and I'm sure to some extent economists as well when doing research,

00:05is a little bit of certainty in public policy. And that's something we just don't have right now.

00:11So how difficult is it for you and your colleagues to understand the effects that

00:17the tariffs the president wants to put on not only imported foreign goods,

00:23but also now exported goods, what effect they're going to have on inflation?

00:27Well, it's really hard to tell until the smoke clears. For example, on the tariffs,

00:34he'll say one thing one day, another thing another day. I mean, how do you make predictions when it's

00:40such a moving target? I think in general, the economists will prove correct that most of the

00:46tariffs will be paid by consumers. It will mostly pass through to prices. I think what nobody really

00:52knows is it's so unusual what are going to be the second round effects, what else is going on in

00:58the economy. If you have some inflation coming from tariffs on an otherwise slowing economy,

01:05probably won't notice it that much. But we don't quite know where we are. I mean,

01:10certainly the labor market revisions were pretty stunning and makes it clear the economy's not on

01:16quite as strong, nearly as strong ground as people thought. Your 2009 book, This Time is Different,

01:22the title was funny because that's something you're not supposed to say, right? But this really is

01:27different in terms of the uncertainty of tariff policy and the attack on Fed independence. I don't

01:35know if the word attack is too strong, but certainly it's in question. How does that especially

01:42change the picture? Well, I think it paints a picture of a lot of volatility over the long term.

01:51I mean, Donald Trump, right or wrong about things, is certainly a mercurial personality. And I think

01:58the one thing we can rule out is that he's going to settle down and not continue this constant

02:04experimentation. I mean, I want it to be generous. FDR, who say the Democrats, you know, think was one of

02:11the greats. He was changing his mind all the time at the beginning. He was trying one thing after

02:17another. We remember him for what worked. We kind of forget about all the things that didn't work.

02:22Maybe, you know, it'll turn out like that for Donald Trump. But I kind of doubted on tariffs. I mean,

02:28I think he may have a successful administration in spite of the tariff policy, but not because of it.

02:36Yeah. And I mean, it's it's helpful context that he has been consistent when it comes to tariffs.

02:41It just feels like maybe it was Wall Street that misjudged his conviction there on that point. But

02:47when it comes to the economic data that we've gotten thus far and you think about it, just once,

02:52I mean, I mean, you know, he kept changing his mind. I mean, if the tariffs are going to be 150 percent,

02:5950 percent, we get different answers for these things. I think there's a world of difference

03:04when tariffs get up to 20, 25 percent from when they're 10 percent. So, you know, when it settles

03:11down, then we have a better idea. Right. I hear what you're saying, Professor. Some pushback might

03:16be that 150 percent, maybe that was never truly going to happen. Maybe that was being used as a

03:21negotiating tool. But simply when it comes to the idea that he was going to put tariffs on,

03:26there had been some skepticism around that point. Yeah, fair enough. And I think what economists

03:33would have said, I think most did, is that if he just quietly put on 10 percent tariffs,

03:40not the greatest idea, it's a tax, but really wouldn't be that big a deal for the American

03:45economy, especially if you cut taxes somewhere else. When you start getting up to 15, 20 percent,

03:52and I'd say especially 25 percent, it starts to make actually quite a material difference in most

03:58models. Well, that's exactly where I wanted to go, because you think about the average tariff rate

04:02right now, 15 to 18 percent, depending on, you know, what source you're looking at. I mean,

04:08what does that mean for the American economy? If we stayed even at these levels, Professor,

04:13where do you see that really making an impact? Well, it's going to make an impact in our financial

04:20markets. To the extent that you are running smaller trade deficits, you have less money coming

04:27in. It's going to push interest rates up. Money coming from abroad was helping to hold interest

04:32rates down. I'm talking about long-term interest rates, not what the Fed's doing. I think we're also

04:37going to see it in over the medium term, say a few years, not overnight, in how investors view the

04:45dollar as a safe asset. These tariffs, when it's harder to move money in and out of the country,

04:52even if you're talking about goods, they're connected to financial markets, and it makes the

04:56dollar less attractive, again, pushing up interest rates. Now, of course, Trump administration has a lot

05:03of moving parts. There are dollar stable coins, other things going on. You can't just point at one policy.

05:09How much more do you think our dollar, your problem, how much more do you think our dollar

05:16is going to weaken? We've already come, I guess, about 10 percent off of the highs, but you could

05:21argue that it was overbought. But we still have, right, the high debt, and that could be getting

05:28worse, policy missteps, maybe the attack on Fed independence, obviously the tariffs. Is that going to

05:38devalue the dollar another 10 percent, another 20 percent?

05:43So there's sort of two separate things. One is, is the dollar going to be the lingua franc of the

05:48global financial system? It reached a level of dominance 10 years ago, the likes of which maybe

05:54has never been seen. I think it's declined some since then. But remember, that dominance is held

06:00whether we've run deficits or surpluses when the dollar is high, when the dollar is low.

06:04The dollar, as you say, Matt, was very high at the beginning of the Trump administration

06:10in terms of purchasing power. We haven't seen anything like it since 2002 and before that,

06:171985. And both times, the dollar came off dramatically. I think after 2002, something like 40 percent.

06:26So 10 percent is nothing. I mean, I think the dollar likely is still going to weaken over the next

06:32couple of years. Even if everything goes great, but the dollar is still really richly valued.

06:37Conversely, you can point to currencies like the Japanese yen, which just can't stay as weak as they

06:44are forever. I mean, especially if they raise and we continue to cut. And on that note, Professor,

06:50I want to ask you finally, if we do cut rates and you've got to guess that, you know, if Trump gets

06:56his pick of chairs, it's going to help. 150 basis points, 175. Is that likely to stoke inflation?

07:04Does monetary policy really have that strong effect on inflation?

07:09Well, if they get it wrong, it would. I mean, I think the consensus is that the neutral rate's

07:15gotten quite a bit higher. It's not what it was in the 2010s. We don't live in the ultra low interest

07:21rate era. There's a lot of debate around that, but I think it's shifted towards thinking higher

07:27for longer, certainly for long term rates, but probably for short rates. So there are two ways

07:34to call it. I certainly don't think they're going to come down 150 basis points. That's on the high

07:40side, even at the end of 2026. I think we're going to end up in a higher rate regime. I would look

07:46them to land at 35375. If they don't, yeah, we'll get inflation.

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