US Economists: 'Trump's Policies, Attempt to Control Fed More Dangerous Than Inflation'

"Tariffs, Tax Cuts, Immigration Crackdown Have Less Inflation Impact Than Expected"

"Congress Unlikely to Support Further Tax Cuts Due to Rising National Debt"

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Leading economists in the United States have stated that President-elect Trump's plans to expand tariffs, cut taxes, and curb immigration may not initially cause as much inflation in the U.S. as expected. Instead, they warned that if Trump attempts to control the Federal Reserve, it could pose a real risk of causing inflation.

According to foreign media on the 6th (local time), economists expressed these views on the implications of Trump's second term for the U.S. economy at the annual meeting of the American Economic Association held last weekend in San Francisco.

Trump will inherit an American economy where inflation is much lower than its peak, unemployment is at a historic low of 4.2%, and the economy is booming at about 3%.

However, Trump is advocating for strong tariffs not only against China but also against Mexico, Canada, and the European Union (EU). This could lead to an increase in the prices of imported goods. By extending expiring tax cuts, it could also stimulate demand, contrary to the Federal Reserve's efforts to cool demand. Strengthening immigration crackdowns could stagnate a major source of labor growth in the U.S., with some fearing it could spur wage inflation.

Former Federal Reserve Chairman Ben Bernanke said, "Trump's policies will have minimal impact on the inflation rate from a public finance perspective." He also noted that while wages could rise due to immigration restrictions, the number of people purchasing goods and services would decrease, easing price pressures.

Bernanke, who served as an advisor twice under the Bush Administration, mentioned, "It's hard to predict whether tariffs are temporary for negotiation purposes or if Trump intends to make them permanent."

Bernanke and economists also stated that with rising national debt, Congress is unlikely to support further tax cuts.

Christina Romer, an economics professor at the University of California, Berkeley and former advisor to the Obama Administration, also predicted that "there won't be any drastic changes or alarming events from a macroeconomic perspective." Instead, she warned that the greatest risk would be if the Federal Reserve's independence is compromised, leading to significant consequences such as loss of trust and financial market turmoil.

Harvard University economics professor Jason Furman, who also served as an advisor to former President Barack Obama, expressed concern over the possibility of Trump making partisan appointments or undermining the independence of the Federal Reserve Board.

He agreed that Trump's policies would have a relatively small impact on inflation, around 0.3%p to 0.4%p. Nonetheless, he anticipated that even a few percentage points added to the current 2.4% inflation could delay the Federal Reserve's rate cuts this year. He emphasized that if price pressures do not subside, there could be a return to rate hikes next year.

Overall, economists agreed that the current strength and momentum of the U.S. economy would not be easily shaken.

Karen Dynan, a Harvard University economics professor who worked under the Obama Administration, stated that Trump's tariff proposals and immigration regulations could create headwinds for growth or spur inflation. Nevertheless, she pointed out that the U.S. economy is likely to maintain its correct direction with solid economic growth and disinflation due to the Federal Reserve's future rate cut prescriptions and rising stock markets.

Guest Reporter Kim Jung-ah kja@hankyung.com