1st Quarter 2025 – Kempner Capital Management

KEMPNER CAPITAL MANAGEMENT, INC.
1st QUARTER ECONOMIC NEWSLETTER
April 9, 2025
By Harris L. Kempner, Jr., President

Unfortunately, the concerns we expressed in the Newsletter of January 6, 2025, about the results of the policies emanating from Washington, D.C. are being realized as we write. We are even more convinced that President Trump’s three main economic initiatives- tariffs, deportations, and less Fed independence – will be both inflationary and then recessionary for the economy.

Tariffs He has, as of this writing, inflicted tariffs on every single country in the world, with especially high tariffs on China, and threatened still more on specific areas such as pharmaceuticals as of this morning. Who knows what is next? As projected, some countries against whom tariffs are directed have replied with countervailing tariffs, particularly China, but also apparently in an announcement this morning, the EU as well. This will raise inflation even more. As we stated before, there are those who believe he is using this tactic only as a bargaining tool. We believe that he will maintain considerable tariffs in various places for a very long time as “pay fors” for continuing his tax cuts past 2025 and any new tax cuts he can persuade Congress to pass. Tariffs have already started to affect the U.S. economy as people have forerun these with a surge of purchases of goods particularly, which now we will begin to pay for later in much slower goods buying by corporations, and overall drops in employment.

Deportations It is clear now that Mr. Trump is not just deporting “criminals.” Many innocent people are being caught in the net and are being accused of being criminals when there is no proof whatsoever. He has revoked Visa protection for hundreds of thousands, and more are coming. Leaving aside all other considerations, economically this will hit very hard at agriculture where some 50% of workers in the fields and factories are estimated to be illegals, at construction, where 25-30% are estimated to be illegals, and on Main Street, because of many entrepreneurial undocumented workers. We see no let up whatsoever in this deportation of the workforce. It will raise prices for us all.

Independence of the Federal Reserve He is trying to undermine that. He has already lambasted the Fed for maintaining interest rates at the present levels and is doing a President Nixon/Arthur Burns playbook move in which he is trying to get the Fed to lower rates despite the higher inflationary effects of his tariffs and deportations. If he succeeds in persuading them to do so it will unleash inflationary expectations even more than we now expect and make a bad situation even worse.

In sum, what he is doing is slashing into our economic system and claiming, of course, that all will be well one of these days. We certainly do not expect one of these days to come within the next six months to a year and therefore having increased our certainty that we will soon be dealing first with stagflation, then with very high probability, a recession later this year.