Instead of immediately passing tariff costs to consumers, US corporations are initially absorbing the shock. They are mitigating the impact by reducing labor costs and accepting lower profitability, which explains the lag between tariff implementation and broad consumer inflation.

A paradoxical market reality is that sectors with heavy government involvement, like healthcare and education, experience skyrocketing costs. In contrast, less-regulated, technology-driven sectors see prices consistently fall, suggesting a correlation between intervention and price inflation.

Wage stagnation is not accidental but a result of two concurrent policies. By sending manufacturing jobs overseas and simultaneously bringing in low-wage labor, corporations create a market where domestic workers lose nearly all leverage to demand higher pay for remaining jobs.

The combination of solid GDP growth and weaker job creation is not necessarily a warning sign, but a structural shift. With productivity growth rebounding to its 2% historical average and labor supply constrained by lower immigration, the economy can grow robustly without adding as many jobs as in the past.

The inflation market's reaction to tariff news has fundamentally shifted. Unlike in the past, recent tariff threats failed to raise front-end inflation expectations. This indicates investors are now more concerned about the negative impact on economic growth and labor markets than the direct pass-through to consumer prices.

America intentionally avoided solving illegal immigration because it serves a crucial economic purpose: providing a flexible, cheap labor force that doesn't draw on social safety nets. This benefits industries and consumers while placing little burden on the state.

The Fed expects inflation from tariffs to be a temporary phenomenon, peaking in Q1 before subsiding. This view allows policymakers to "look through" the temporary price spike and focus on what they see as a more pressing risk: a cooling labor market. This trade-off is described as the "cost of providing insurance to the labor market."

Data from 2004-2023 reveals low unemployment in occupations that heavily utilize H-1B visas, such as tech and engineering. This suggests that foreign workers are filling a talent gap rather than displacing a large number of available American workers, challenging the narrative that immigration is a primary cause of job loss in these sectors.

Restricting immigration halts a key source of labor for essential sectors like agriculture and construction. This drives up consumer costs and could cut GDP by 4-7%, creating a direct path to higher inflation and slower economic growth.