Greg Ip
Appearances
Apple News Today
Inflation helped Trump win. Now it’s becoming a headache.
People endured quite a few years of rising prices for groceries, gasoline, other basics.
Apple News Today
Inflation helped Trump win. Now it’s becoming a headache.
So I think Trump knows that he has to deliver on lower costs for people in order to really fulfill the economic mandate that he's been handed.
Apple News Today
Inflation helped Trump win. Now it’s becoming a headache.
Whatever is happening in the economy, do not blame or thank the president because there is so little that a president can do. Most of these things are driven by really complex, multifaceted phenomena that have to do with the quality of the workforce, the level of technology, big global shocks like the financial crisis from 15 years ago or the COVID pandemic.
Apple News Today
Inflation helped Trump win. Now it’s becoming a headache.
The president has promised 25% tariffs on all imported steel and aluminum to take effect in a few weeks' time. And we have already seen U.S. steel companies raising their prices because now they can compete better with imports. And we've seen prices on markets go up, and that will find its way into a variety of products that Americans consume.
Apple News Today
Inflation helped Trump win. Now it’s becoming a headache.
He and his advisors are also very aware that if the inflation problem persists beyond a few months, the ability to blame this on Biden starts to ebb away and people are going to hold him responsible for it.
Apple News Today
Will the Supreme Court allow Trump to fire Fed Chair Jerome Powell?
They may decide to keep interest rates lower than they think is wise, and that might result in higher inflation and a lower dollar. Investors know this, and so they will be looking at everything the president says, and they will assume that when the president says, I want lower interest rates or I want a lower dollar, for example, that the Fed will somehow deliver the policy that does that.
Apple News Today
Will the Supreme Court allow Trump to fire Fed Chair Jerome Powell?
One is that it could introduce a lot of volatility. Now, you might initially get a rally in stocks because stock investors tend to like lower interest rates. But you would also see the markets beginning to build in higher expectations of inflation in the long run. And that could lead to higher long-term interest rates.
Apple News Today
Will the Supreme Court allow Trump to fire Fed Chair Jerome Powell?
And that would affect things like the money that the government pays to service the national debt. It would affect things like mortgage rates that homeowners pay.
Apple News Today
Will the Supreme Court allow Trump to fire Fed Chair Jerome Powell?
The Supreme Court is addressing a question about whether the president can fire members of independent agencies for anything other than cause.
Apple News Today
Will the Supreme Court allow Trump to fire Fed Chair Jerome Powell?
If they do, then in theory, the president would be able to fire the chairman of the Federal Reserve. And the Fed chairman would effectively, instead of being an independent central banker, become an at-will employee of the president, like any cabinet secretary.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Our last survey asked economists that question, and they put the probability of recession in the next 12 months at 45%, which was up a lot from 25% in our prior survey. So the consensus is that we won't have a recession, but it's a very high risk. I think you're asking my view.
The Journal.
Trump 2.0: Where Is The Economy Headed?
I don't think we'll have a recession because I think, first of all, you know, one thing I've learned watching the economy over the years is that there's a self-correcting mechanism at work here. And so I kind of think that we'll look back and see that all the chaos—
The Journal.
Trump 2.0: Where Is The Economy Headed?
of the last few weeks was a little bit of a sorting out process where the administration, responding to all the outside feedback it got to its plan, dialed it back and arrived at something that was perhaps a little less disruptive than people originally expected. And for that reason, I think the economy will probably make it through the year without a recession.
The Journal.
Trump 2.0: Where Is The Economy Headed?
And by the way, I just sort of like gave you the consensus forecast, right? I just basically said, well, the consensus is here and I'm just a little bit to the side of the consensus. So it is not exactly a profile in courage if I have to, if I'm being honest.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Well, Molly said a moment ago she came back to this kind of maelstrom of markets gyrating up and down. And what I find fascinating is that if you actually were able to ignore the markets, in fact, if you were able to ignore the news and only look at the economy, the economic data, the kind of stuff that we nerds sort of focus on, you know, like the Consumer Price Index and the unemployment report.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Nothing much is going on. The economy, since Trump became president, looks a lot like the economy when Biden was still president. Job growth is chugging along. Almost no sign of, like, Elon Musk's Department of Government Efficiency layoffs. Certainly no sign of big cuts to federal spending, which is actually up compared to a year ago. In spite of the
The Journal.
Trump 2.0: Where Is The Economy Headed?
much ballyhooed largest deportation in history. We don't see much sign that migrants have disappeared from the labor force. And on the tariffs, this is the most fascinating thing. There's just not much inflation out there. Now, there's a great big caveat to that, of course, and that is it's early days.
The Journal.
Trump 2.0: Where Is The Economy Headed?
But I still think it's intriguing that for all the talk of tariffs, we're not seeing it in the price data. We're not seeing it in the spending data. So this is definitely a time of frayed nerves, certainly among investors and consumers. But the economy overall kind of looks fine.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Well, if you actually take the administration at its word, if you take them both seriously and literally, then there is a very good reason to be worried. Because the scale of the tariffs, number one, the dollar value alone would amount to one of the largest tax increases relative to the size of the economy since the 1960s. So that would definitely weaken the economy.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Secondly, the impulse to prices would deliver a very strong boost to inflation. And finally, it would require a highly disruptive reorganization of supply chains, which would be costly and take years to work through. But, of course, the big question mark is, will the president actually follow through on this? And what we have seen is an interesting kind of, you know, self-correcting mechanism.
The Journal.
Trump 2.0: Where Is The Economy Headed?
The president threatens very aggressive action. The markets sell off. The president walks it back. And now we have a pause on tariffs. We have even talk of the tariffs on China being reduced and so forth. And so the markets improve.
The Journal.
Trump 2.0: Where Is The Economy Headed?
It would still be a very big hit to the economy if we had a lasting 50% tariff on China. I mean, our imports from China, a lot of them cannot be easily replaced by goods from other countries. Even if we were to move that production to other countries or to the United States, that's a multi-year process. So it's almost impossible to avoid some impact on prices and consumer spending.
The Journal.
Trump 2.0: Where Is The Economy Headed?
But again, we're not seeing the impact yet. And I think there might be a couple of reasons for it. First of all, a lot of the importers that were most exposed to these kinds of tariffs, they kind of saw the writing on the wall. And there was kind of a rush to import goods in the months leading up to the president's inauguration. And so that stuff is sitting in inventory waiting to be sold.
The Journal.
Trump 2.0: Where Is The Economy Headed?
The effect of tariffs may not show up until that inventory has been run down somewhat. And we've seen some companies actually rather than raised prices, step back and wait a little bit just to see what happens.
The Journal.
Trump 2.0: Where Is The Economy Headed?
You know, Molly, I feel like we could have had exactly the same conversation a year ago when the economic numbers were looking pretty good, the inflation rate was coming down a lot, and people's confidence was terrible. People were really upset, right?
The Journal.
Trump 2.0: Where Is The Economy Headed?
And we talked endlessly about the disconnect, the disconnect between the good economic data and the poor vibes. And I kind of feel like the disconnect has now come for Donald Trump. And it just, I think, just demonstrates that there's a profound dissatisfaction in the economy which you can't pin on any particular president or any particular policy. So...
The Journal.
Trump 2.0: Where Is The Economy Headed?
The vibes in part are shaped, I think, by an underlying level of dissatisfaction that predates this administration. I think it also reflects the fact that the news is full of all the talk of what's going to be happening with tariffs and so forth. And, you know, we're rational people, right?
The Journal.
Trump 2.0: Where Is The Economy Headed?
So if like every time you open your social media feed or you listen to the news, it's talk about price increases are coming, price increases are coming. Of course, that's going to affect your mood and your vibes. But I think the key question we need to ask ourselves is, at what point do these concerns about the future actually reflect behavior in the present?
The Journal.
Trump 2.0: Where Is The Economy Headed?
And we just haven't seen that happen yet. So until that does, I'm going to continue to sort of treat this as kind of like Disconnect 2.0.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Well, the president obviously is upset that the markets don't like his tariff plan and that they've responded by driving down stock prices. And so the president says, hey, I've got this great plan. It's important for the economy, but I could use a little help here. And what does he turn to? Well, he turns to the Federal Reserve.
The Journal.
Trump 2.0: Where Is The Economy Headed?
And those of us who covered his first term are familiar with this script because in 2018 and 2019, when the Fed was raising interest rates from the very low zero level, the The president was attacking the Fed then, including Jerome Powell, the chairman who Trump himself, by the way, appointed.
The Journal.
Trump 2.0: Where Is The Economy Headed?
I think what gave it a different flavor this time, Kate, was that beneath that complaint was the threat that if Powell did not lower interest rates, Trump would fire him. And this is a whole new level of uncertainty and tumult that the market is just not used to.
The Journal.
Trump 2.0: Where Is The Economy Headed?
And it just kind of like, you know, adds to the overall feel of the institutional sinews of the economy becoming increasingly frayed and less dependable. And that's just not a big confidence-building measure.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Well, as my colleagues reported this week, we think that the market's role is quite important. The president does seem to be a little less sensitive to the stock market than he was in his first term, but he is still sensitive.
The Journal.
Trump 2.0: Where Is The Economy Headed?
And when the stock market, and in particular the bond market, when they started to show real signs of cracking, that is coincided with when they announced the pause on many of the tariffs.
The Journal.
Trump 2.0: Where Is The Economy Headed?
For those in Trump's inner circle who are a little nervous about the speed and aggressiveness of this tariff action, that provided them with talking points and ammunition to sort of like suggest to the president, hey, Mr. President, maybe it's time to walk this back. There might be a better way.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Well, you know, it's kind of like almost a cliche now, but uncertainty is like bad for growth, right? I mean, businesses are just inclined not to do anything. But the longer this uncertainty persists, the more likely that negative effect is likely to manifest itself.
The Journal.
Trump 2.0: Where Is The Economy Headed?
I would say that, as you say, I think that especially leaders from other countries have been struggling to figure out exactly what is it that Trump responds to. Even more so, they're trying to figure out what he wants from them to get rid of the tariffs. We hear this over and over again from countless countries is that they go in, they talk to the president's advisors.
The Journal.
Trump 2.0: Where Is The Economy Headed?
They say, we want to like work with you to negotiate with you. What do you want? And they don't get a clear answer. And so I think it's way too premature to think that the uncertainty is about to go away soon. Because I think that there is still this chasm of mystery about exactly what the United States wants and what the president can ultimately accept from a negotiation.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Look, I think one thing that I think we can say with some confidence is that however all these tariff negotiations end up, we will end up with higher tariffs than we did before. And we will especially end up with higher tariffs on products that are very important to the president like automobiles, steel and aluminum, semiconductors, a few other things.
The Journal.
Trump 2.0: Where Is The Economy Headed?
And so it seems almost certain that we should see some new investment, new jobs in the United States as a result of the fact that it is now very costly to import those things and it makes more sense to make them in the United States. We'd already seen, for example, that the steel tariffs that President Trump had imposed in 2018 in his first term had a little bit of that effect.
The Journal.
Trump 2.0: Where Is The Economy Headed?
But, of course, that's only the narrow first order effect of the tariffs. And I think you have to step back and ask, what are the bigger effects on the economy? First of all, it will make it very expensive to operate any business in the United States that uses those products that are protected.
The Journal.
Trump 2.0: Where Is The Economy Headed?
Because we know with confidence that one thing protection via tariffs does is it makes the protected industry more expensive and less efficient. So I think that putting walls up around the U.S. economy will, over time, lead to possibly a more stable manufacturing sector but a less competitive one. But look, the U.S.
The Journal.
Trump 2.0: Where Is The Economy Headed?
economy is an incredibly big and dynamic economy, and it is very likely to be a very prosperous economy. and dynamic economy for a very long time to come in spite of these tariffs. So I'm not convinced that five to 10 years from now, it will look a whole lot different than it does now.
WSJ What’s News
Fed Holds Rates Steady, Dims Economic Outlook
The main takeaway from what Chair Powell had to say is that not a lot in the economic outlook with respect to either economic growth or inflation has changed, notwithstanding the fact that the headlines and the conversation have been jam-packed. Thank you very much.
WSJ What’s News
Fed Holds Rates Steady, Dims Economic Outlook
Well, they lowered their economic growth projection for this year to 1.7% from 2.1%. Now, that's obviously in the wrong direction, but I'm not sure how much to read into that because a lot of that might just reflect some of the strange weakness we've seen in the quarter so far. They also raised their expectations for inflation this year a little bit by about a quarter of a percentage point.
WSJ What’s News
Fed Holds Rates Steady, Dims Economic Outlook
And Chair Powell in his press conference did indicate that that reflected some expected pass-through to consumer prices from higher tariffs. But if you look at the projections for the following year, those haven't really changed.
WSJ What’s News
Fed Holds Rates Steady, Dims Economic Outlook
So effectively, what they're saying is we think tariffs will generate this one-off bump up in the inflation rate, but not a persistent increase in inflation, which is the kind of thing that they would worry about and might have to respond to by raising interest rates.
WSJ What’s News
Fed Holds Rates Steady, Dims Economic Outlook
The press corps obviously wanted to get him to talk expansively about all the stuff Trump's been doing on tariffs and on spending cuts and so on. And Powell, who tries very hard to maintain the apolitical, nonpartisan reputation and mission of the Fed, he wasn't helping out on that front at all. He was batting down those questions left, right, and center.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
Electricity is almost a purely domestically sourced energy supply. And it's also very diverse. Because of these many different modes of electricity, there's no maximal exposure to disruptions in any single mode.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
Almost all of it comes from domestic sources, sources like renewables, wind, and especially solar, which has become very, very important. There's a lot of excitement about new nuclear technologies that are on the drawing board. Geothermal, also another potential area of expansion. What's interesting about electricity is that unlike oil, which is very much a global market,
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
And therefore, we are in some sense vulnerable to global developments. Electricity is almost a purely domestically sourced energy supply. And it's also very diverse. Because of these many different modes of electricity, there's no maximal exposure to disruptions in any single mode.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
Well, the economics of electricity are very different from the economics of oil. With oil and to some extent natural gas, when it's burned for heating, for example, most of the cost involves the fuel itself. But with electricity, most of the cost is the infrastructure involved in generating and transmitting it. And so electricity is a very capital intensive form of energy relative to oil.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
And that means you have long lead times and enormous capital demands. And that's especially important right now because the central point of my column is that we are seeing much faster rates of growth in electricity demand in coming years than we've seen in many decades. And that means that we need to have in place these capital intensive infrastructure
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
arrangements to make sure that we have the capacity to generate that electricity.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
All of them are aware of these needs that are coming along. So they're filing with regulators plans to build more generating capacity, but you're seeing other arrangements coming along as well. So big users of electricity like Google and Amazon and Microsoft are building co-location agreements.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
Instead of simply building a data center and then buying their electricity off the grid, they're actually making arrangements with like nuclear power plants to have direct access to that power.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
Well, if you think about it in the old days, why did we worry about oil security? It's because if there was a shock to the supply of oil, it could really do a lot of harm to the American economy. Well, as oil becomes less important, those shocks are less of a risk.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
But you do have to worry about economic growth coming to a halt because we don't have enough electricity capacity or that capacity has been interrupted by some kind of accident or demand spike or something like that.
WSJ What’s News
How RFK Jr. Is Reshaping the U.S. Health Agencies
There is a big mission ahead for investors, utility companies, the public, and our political leaders to basically have in place all those building blocks to make sure that that infrastructure that can serve the electric economy is there and able to accommodate those demands. Otherwise, it will be a big negative for economic growth.