4th QUARTER ECONOMIC NEWSLETTER
January 6, 2025
By Harris L. Kempner, Jr., President
A considerable amount of what will take place in the U.S. economy is now functionally dependent on policies that will be forthcoming from Washington, D.C. Unfortunately, we feel that President-Elect Trump’s three main economic initiatives will be both inflationary and eventually recessionary for the economy.
1.) Tariffs
He has affirmed as late as today, that he wishes to have extensive tariffs on our major trading partners. This tax on imported goods will have the immediate effect of raising their prices to us (in some cases, substantially). The countries against whom tariffs are directed will likely reply with countervailing tariff prices raised even more. There are those who feel that he will be using this tactic only as a bargaining tool, but I believe he will need to have them as “pay fors” for continuing his tax cuts past 2025. Once in effect, we believe they will negatively impact the U.S. economy during the next 6-12 months.
2.) Deportations
It is estimated there are 11 million people who are here illegally, some of whom have been here for generations. Substantial deportations of individuals and families will cause shortages in crucial areas of the economy such as agriculture, construction, and home health care. If enacted, these policies will have inflationary and then recessionary impacts in our opinion. We think the chances are very high that he will carry through with his continuous threats on the subject.
3.) Independence of the Federal Reserve
President-Elect Trump has indicated that he believes that the Federal Reserve should not be totally independent, but rather susceptible to the desires of then President of the United States. However, in our opinion, this would be a serious mistake because the independence of the Fed is absolutely necessary to maintain faith that they can fight the inflation that will be coming from the previous two mentioned activities. This can be a very serious matter if people in markets begin to believe the Fed’s independence is going to be undermined.