Trump's Economic Plan Has Inflation Written All Over It - Blinder, WSJ
Among the many ironies in the recent election is this: One of the main reasons why Donald Trump defeated Kamala Harris was the high inflation of 2021-23. Yet almost every economist will tell you—as many did before Nov. 5—that Mr. Trump’s proposed policies are inflationary. Three such policies received the most attention during the campaign: tariffs, tax cuts, and the mass deportation of illegal immigrants. I’ll take those up first, before turning to what poses the biggest inflationary danger: the threat to the Federal Reserve’s independence.
No matter how many times Mr. Trump denies it, tariffs are (discriminatory) sales taxes. Discriminating against imported goods is their purpose. Sales taxes, of course, raise prices for consumers, and research says American consumers have paid for almost 100% of recent tariff hikes.
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Then there is the potential 800-pound gorilla in the room: the threatened mass deportation of illegal immigrants. That will be inflationary by restricting the supply of U.S. labor.
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During his first term, Mr. Trump berated Chairman Jerome Powell and the Fed constantly as they lifted interest rates gently off the floor. He even inquired whether he could fire Mr. Powell, and was told he couldn’t. The Fed chair serves a four-year term and can be removed only for cause. The post was designed to be nonpolitical, not to turn over when the presidency does. But that was Trump I, when there were still some guardrails in the form of sensible people in the administration. What about Trump II with no guardrails? Mr. Powell has said he won’t resign if Mr. Trump asks him. Good for Mr. Powell, who has already shown more backbone than the Republican caucus.
What happens then? Can we really imagine Pam Bondi as attorney general telling her boss that he can’t fire Mr. Powell? It’s easier to imagine the issue going to court. If it goes all the way to the Supreme Court, it’s all too easy to imagine the 6-3 conservative majority siding with Mr. Trump. If so, Federal Reserve independence goes out the window.
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