By Ann Saphir
SAN FRANCISCO (Reuters) – A number of leading economists, including advisers to past U.S. presidents, have coalesced around the view that President-elect Donald Trump’s plans to broaden tariffs, cut taxes and curb immigration may not prove as inflationary as early analysis had suggested.
At the same time, these economists said, any effort by Trump to exert control over the Federal Reserve would pose a real risk of reigniting price pressures, vexation with which helped get him elected.
With two weeks to go before Trump’s inauguration, the uncertainty about what his second stint in the White House will mean for the U.S. economy was a central focus of discussion over the weekend at the American Economic Association conference in San Francisco, one of the premier annual gatherings of leading economists.
Trump will inherit an economy growing at a brisk pace of around 3% even as inflation has come way down from its peak, with the unemployment rate at a historically low 4.2%.
His economic agenda includes stiff tariffs, not just on China but on Mexico, Canada and the European Union that could lift prices of imported goods. He also aims to extend expiring tax cuts and possibly offer new tax breaks that could stoke demand just as the Fed is aiming to cool it. An immigration crackdown could dent the primary source of U.S. labor force growth, which some fear could fuel wage inflation.
Nevertheless, former Fed Chair Ben Bernanke told the gathering, “Trump policies, whatever their merits on public finance grounds, probably will be modest in terms of their effect on the inflation rate.”
Most of the expiring tax cuts were expected to be kept in place no matter which presidential candidate was elected, Bernanke and others point out, and congressional appetite for additional cuts against the backdrop of rising national debt may be limited.
Bernanke, an adviser to the second Bush administration before leading the Fed, said that while immigration curbs might push up wages, they also mean fewer people buying goods and services, which could ease price pressures.
And although the effect of tariffs “is very hard to forecast because we don’t know if the president wants to just put them on temporarily for bargaining purposes or whether he wants to keep them permanently,” said Bernanke, “barring some very unusual situation, including perhaps political risks, it doesn’t seem like that’s going to really shift the inflation path radically.”
‘REMAIN ON TRACK’
Some advisers to previous Democratic administrations shared Bernanke’s sanguine view.