Nick Timiraos
Appearances
The Journal.
Trump 2.0: The Uncertainty Economy
Hey, Ryan. Hey, Molly. Thanks for being here. Thanks for having me.
The Journal.
Trump 2.0: The Uncertainty Economy
Well, I think there's kind of two ways to look at this. You can look at the economy just with all the backwards-looking data that economists look at, and you would say, economy's doing pretty well. Not perfect, but we've had inflation come down over the last two years. The unemployment rate is low. People have jobs. They're spending money. Economic performance is pretty good.
The Journal.
Trump 2.0: The Uncertainty Economy
You look at what's coming from all of the policy uncertainty. You have immigration changes, obviously big changes on trade policy with these federal spending cuts and layoffs at Doge. And you say, wow, we're running a lot of policy experiments at once here. And that's not great for certainty and confidence. And who knows how this is going to go?
The Journal.
Trump 2.0: The Uncertainty Economy
It's hard to say because the administration doesn't even seem to be clear on that point. I think what you kind of gather is we're going to make more stuff here. Over the last 30 or 40 years, we've allowed other countries to make the things that we consume. And we are an economy that produces more services, tradable services.
The Journal.
Trump 2.0: The Uncertainty Economy
This is high value, but we lost a lot of manufacturing jobs over the last 30 or 40 years. So part of this is we're going to bring more of those jobs back. The reason I hesitate is... The president and his advisors also talk about raising more revenue from tariffs, which would imply that we continue to import things from overseas and we charge people more for it and we raise revenue that way.
The Journal.
Trump 2.0: The Uncertainty Economy
So I think there's a little bit of a work in progress on what exactly Trump 2.0 is driving at.
The Journal.
Trump 2.0: The Uncertainty Economy
The concerns now really come in two ways. One is that tariffs which are taxes on imported goods, they're going to send up some prices again. So the Fed thought inflation was going to keep, you know, we're going to grind it all the way back to their goal, but it might take a couple of years. Now you may go in the wrong direction. So that's one concern.
The Journal.
Trump 2.0: The Uncertainty Economy
The other concern is you're going to weaken growth potentially here. You know, we've had a labor market where hiring has been low, but firing has been low. I call it a slow to hire, slow to fire situation. equilibrium. And if you do something to disrupt that, you risk a big increase in the unemployment rate. When the unemployment rate goes up by a little bit, it usually goes up by a lot.
The Journal.
Trump 2.0: The Uncertainty Economy
So those are the two concerns right now. You're taking steps that could push prices up and growth down, and we don't really have a lot of experience with how that's going to work out.
The Journal.
Trump 2.0: The Uncertainty Economy
Well, the worry right now, if you're at the Fed, you're charged with keeping prices low and stable and with maintaining a healthy labor market. Some of the actions on trade right now are creating what's called a negative supply shock, where you're disrupting supply chains. The reductions in immigration also reduce the supply of workers in the country.
The Journal.
Trump 2.0: The Uncertainty Economy
That's tricky because the Fed in that situation has to choose. Are you going to cushion the hit to demand by lowering interest rates as the economy slows and as unemployment goes up? Or are you going to worry about inflation and prevent a bigger increase in prices by keeping interest rates higher than they otherwise would be? Which mistake are you willing to make here?
The Journal.
Trump 2.0: The Uncertainty Economy
You know, you kind of have to – it's a lose-lose for the Fed. So they have to pick which thing they think is the bigger problem to worry about. And sometimes that just isn't obvious.
The Journal.
Trump 2.0: The Uncertainty Economy
Businesses hate this, right? They just hate it. And it's not so much the tariffs. I mean a lot of businesses don't like tariffs unless it's going to protect their industry. What they don't like is that what's announced at 9 a.m. may be different from what policy is at 1 p.m. versus what policy is at 5 p.m. How do you plan for the future in that environment? I mean if you are going to –
The Journal.
Trump 2.0: The Uncertainty Economy
bring your factories back to the U.S., you want to know what the tariff rates are going to be, what the cost structure is going to be. So what I've heard from businesses, it's not so much we don't like tariffs and we don't want to see tariffs, even if that's true. It's they want certainty. They want to know what the outlook is going to be, even if the tariffs are going to be really high.
The Journal.
Trump 2.0: The Uncertainty Economy
Just tell me what they're going to be, and then let's get on with this, and we can plan for that. I think that's the issue that is most frustrating right now to business leaders. And you're exactly right. They're not saying these things publicly because nobody wants to get into the president's line of fire. All right.
The Journal.
Trump 2.0: The Uncertainty Economy
I mean, the answer is yes, but it's complicated. So cutting spending reduces demand. That can help in an overheated economy. Absolutely, that can help you get inflation and price pressures to cool off. The tariffs are more complicated because if you just raise tariffs once, you know, a set it and forget it. We're doing this. It's going to be 10%.
The Journal.
Trump 2.0: The Uncertainty Economy
It's going to infect on April 1st, and everybody knows now that's what's coming. It'll raise prices, but it'll be a one-time effect. If it's only going to happen one time, you shouldn't react to it by raising interest rates or tightening monetary policy. to constrain demand for something that's just going to resolve itself on its own.
The Journal.
Trump 2.0: The Uncertainty Economy
You wouldn't want to hurt the labor market for something that's just going to play itself out. The worry on tariffs is if it begins to get bigger or it's spread out over a longer period of time, then it's harder to tell, well, are prices going up because of tariffs or are prices going up because of broader factors in the underlying economy?
The Journal.
Trump 2.0: The Uncertainty Economy
And that's a situation where the Fed would need to step in and say, all right, we have to cool the economy down now. So the policy experiments, they get sort of hard to untangle.