As usual, one is smarter after reading Mike. But riddle me this: why is the labor market weaker? Tariffs definitely in play, but if that was all it was, we could "look through" them as one-time price-level boost, like Fed says on inflation. Less immigration lowers labor supply & demand and lowers breakevens.
Typically, we'd say say C, I, G must be in play. C's a bit damper (and more coming from top) so there's that, but I's stronger (AI), and gov't fiscal impulse pretty neutral and about to go more positive (BBB cuts).
You ask me, Trumpian madness, chaos, etc. just bad for biz (esp smaller biz that imports; see Beige Book anecdotes), but markets generally booming.
1. Tariffs on intermediate goods permanently alter the rate of inflation (holding all else constant). This means the Fed will in the long run have to keep rates higher than absent tariffs. I would say that this would not be a large impact - based on certain econ papers, we're talking around 0.8pp higher inflation and 0.8pp higher interest rates.
2. Immigration, whether skilled or unskilled, boosts people's incomes. Immigrants are not that substitutable with domestic workers. Moreover, rather than hiring locally, firms are more likely to expand overseas operations (especially service sector jobs).
The two things together, although small on their own, are pushing against the labor market, increasing unemployment and reducing real wage growth.
Reading a different Substack addressing global power comparisons (US-China-Russia), I concluded that all Trump admin officials working to implement Trump's foreign policies are either idiots or sycophants: idiots if they don't know better; sycophants if they do know better but support T's policies because ... loyalty. Reading Mr. Konczal's post today has led me to extend that categorization to all Trumpists who work to implement T's economic policies as well.
As usual, one is smarter after reading Mike. But riddle me this: why is the labor market weaker? Tariffs definitely in play, but if that was all it was, we could "look through" them as one-time price-level boost, like Fed says on inflation. Less immigration lowers labor supply & demand and lowers breakevens.
Typically, we'd say say C, I, G must be in play. C's a bit damper (and more coming from top) so there's that, but I's stronger (AI), and gov't fiscal impulse pretty neutral and about to go more positive (BBB cuts).
You ask me, Trumpian madness, chaos, etc. just bad for biz (esp smaller biz that imports; see Beige Book anecdotes), but markets generally booming.
Whadya got here??
I think two parts explain labor market weakness.
1. Tariffs on intermediate goods permanently alter the rate of inflation (holding all else constant). This means the Fed will in the long run have to keep rates higher than absent tariffs. I would say that this would not be a large impact - based on certain econ papers, we're talking around 0.8pp higher inflation and 0.8pp higher interest rates.
2. Immigration, whether skilled or unskilled, boosts people's incomes. Immigrants are not that substitutable with domestic workers. Moreover, rather than hiring locally, firms are more likely to expand overseas operations (especially service sector jobs).
The two things together, although small on their own, are pushing against the labor market, increasing unemployment and reducing real wage growth.
Reading a different Substack addressing global power comparisons (US-China-Russia), I concluded that all Trump admin officials working to implement Trump's foreign policies are either idiots or sycophants: idiots if they don't know better; sycophants if they do know better but support T's policies because ... loyalty. Reading Mr. Konczal's post today has led me to extend that categorization to all Trumpists who work to implement T's economic policies as well.