Ahead of the Federal Reserve’s policy meeting this week, the focus is on inflation and the labor market – is inflation falling enough and unemployment rising so much that it’s time to for the fed to finally cut its key rate?
What about the race for the White House? What do the economic platforms of Donald Trump and Kamala Harris mean for the economy, inflation, and potentially for the Fed’s policy path as it looks into 2025 and beyond?
Enter Mickey Levy. He is a leading export on the Fed’s monetary policy, with a deep understanding of fiscal policy and how the two policy paths interact. In fact, he is quick to argue in this interview that one of the biggest reasons why the Fed mistakenly let inflation get so out of control in 2021 was that it failed to take into account the fiscal stimulus pumped into the economy during the pandemic. And stresses the importance of factoring in the impact of fiscal forces no matter who wins the election.
As for the big picture on the nation’s budget deficit, he says “unfortunately” there may not be that big of a difference between the potential impact of the fiscal policies of Trump and Harris because both the Biden-Harris team and former President Trump “have vowed…not to touch the structures of Social Security or Medicare, two of the biggest contributors to ongoing deficits.“
”The Fed will also have to be looking at the specifics of the policies, the aggregates, that will allocate and reallocate national resources and have a… potentially significant impact on the economy,” he adds. “The Fed has explained very carefully…how it conducts monetary policy but it has to always pay attention to fiscal policy as it affects the economy.”
Mickey also just published an op-ed in the Wall Street Journal discussing what he calls “The Antigrowth Agendas of Harris and Trump.” It criticizes Trump’s plan to impose more tariffs and the Biden-Harris agenda for tax hikes on wealthier Americans. He says Trump and his team are overlooking the history of tariffs and their negative impact on trade and growth. And he says Harris may not yet have considered the how hard the proposed plan to start taxing unrealized capital gains could hit investors including pension funds.
As for immigration, Mickey says that it has been a plus for the U.S. economy, and that there is more and more research support this view. Agree or not, take time to listen to what he sees towards the end of the interview. This is already a major part of the debate between Democrats and Republicans as the electoral race picks up steam and presumably will only get hotter.
Dr. Levy started his career conducting research at the Congressional Budget Office and American Enterprise Institute, and for many years was Chief Economist at Bank of America, followed by Berenberg Capital Markets. He is a long-standing member of the Shadow Open Market Committee and is also a Visiting Fellow at the Hoover Institution at Stanford University.
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