Weekly Wrap-Up: How Many Own-Goal Kicks/Double Faults Can You Make Before You Lose the Match?

The impact of the administration's damaging economic policies is starting to show.

My econ brothers and sisters and I have long argued that it takes a whole lot of bad policy to turn the $30 trillion ocean-liner that is the U.S. economy. During the Biden years, as the pandemic-era fiscal support and excess savings faded, we lived off of the virtuous cycle wherein tight labor markets and falling inflation generated real wage gains that supported strong consumer spending. And most of the links in that chain remain in place, with the very notable exception of the last one. Very notable, as its 68% of the economy.

I’ll get back to that potentially big problem (five months is neither a blip nor a durable new trend) in a moment, but my point in this weekly wrap is that my spidey sense re the dataflow felt a disturbance in the force this week. Don’t worry—I’ve got receipts—I respect vibes but I travel with data. But remember how folks like me were saying, not that long ago: the soft data (e.g., consumer surveys) are bad, the hard data (jobs, growth, inflation) are good? Well, I’m seeing some hard data problems either in real time or down the road (in the case of the budget, way down the road).

No economy is forever immune to deeply misguided, harmful policies. I’m talking about tariffs, deportations, reckless fiscal policy, and messing bigtime with Fed independence, all of which were on display this week.

Tariffs and Prices: The Impacts are Starting To Show

I wrote about this earlier in the week, with the key points being a) tariff revenues are way up—I mean WAY up, b) this tax on imports has to show up somewhere in the supply chain, with the lion’s share usually borne by consumers, c) there’s been less consumer passthrough this time for reasons I go through, d) but it is happening, and I expect it to grow.

In a sharp editorial this AM, the Washington Post agrees:

My bold:

To many Americans, President Donald Trump’s tariffs might seem costless. That’s because it takes time for them to ripple through the economy. This was the week that the tariff illusion began to evaporate, with new data suggesting that American businesses are starting to feel the pain.

Some graphics from the piece:

Note that those are input prices into domestic production, which is one of the foundational, never-ever-addressed-or-explained flaw in the trade war: half of our imports are inputs into our own manufacturing production.

…rather than protecting American businesses, Trump appears to be hurting them — particularly those in the auto industry and other sectors that rely heavily on inputs from abroad. Trump this week also announced a 50 percent tariff on copper, which will worsen the problem.

This damage is, as I noted earlier this week, likely playing a role in a truly worrisome bit of hard data, the one I referenced above: real consumer spending this year, i.e., Dec24-May25 (most recent data) is flat, down 0.2%. And that is a very different trend than prevailed before Trump and his trade war:

Every one of the figures above, and I’ve got others in my passthrough piece, are own-goal kicks, self-inflicted wounds, and price increases for American consumers who are already stressed by affordability challenges.

Deportations

This big topic deserves its own post, but here I just want to point out two findings that surfaced this week. Before I get to that, though, let me assert that you can’t have a country without borders, making border security an essential component of any legit policy agenda. Of course, that’s not what the Trump admin is about in this space. Undocumented flows were way down before they took office and started their ICE-driven terror campaign.

What that means for growth was the subject of a Dallas Fed study out last week which found (my bold):

…an unexpected increase in net unauthorized immigration raises U.S. output growth for about two years but has almost no effect on inflation. Applying these estimates to our baseline policy scenario, which assumes that net unauthorized immigration remains at its spring 2025 level, annual GDP growth is about 0.8 percentage point lower than it would have been if net unauthorized immigration would have evolved as in the CBO’s latest demographic projection.

Again, this is not a plea for more unauthorized immigration, though it is a plea for rationalizing a longtime broken system that desperately needs legal pathways for those who come here seeking opportunity. Instead, it’s a dispassionate assessment of the economic impacts of our current immigration policies.

Even more notable this week was polling results showing that for most people, including Republicans, the admin is going too far in their often-illegal actions against non-native-born people.

From Politico (my bold):

Americans’ views of immigration have swung drastically upward in the past year, with a new poll showing record-high support for immigration amid President Donald Trump’s controversial mass deportation campaign.

A record 79 percent of American adults think immigration is good for the country, according to a new Gallup poll released Friday. And the number of Americans who want immigration reduced dropped sharply from 55 to 30 percent since last year’s poll.

You can call this a thermostatic reaction to Trumpian outrages, and I’d firmly agree. (Meaning public opinion often reacts like a thermostat, bringing the temperature back to where it was previously set when something makes the room too hot or cold.) Or you can call it an inspiring and timely reminder that a lot of people, probably a majority, are not raging, hateful assholes.

The Budget Outlook Is In Trouble

I had an oped in the NYT this week, based on a new SIEPR brief authored with Adam Shaw and Daniel Posthumus (see here for my Substack version). The point is that each of the three variables that determine the sustainability of debt, whether it’s your household’s or the gov’t’s debt—the interest rate, growth rate, and yearly deficits that get added to the cumulative debt—are all at risk in the Trump era.

The new, ugly, big budget is likely to put significant upward pressure on yearly deficits and thus interest rates. The trade war and deportations, as discussed above, put upward pressure on inflation and downward pressure on growth.

Now, all that’s definitely not a “this week” thing; this isn’t a “hard-data-went-south-this-week” observation. But if we’re ever going to retake the gov’t and implement policies that actually help people who need it, rather than hurt them—which is, without doubt, what the Trump/R budget does—we need to get to work now on the plans to fix this budget math. More to come on that too.

Ratcheting Up Attacks On Fed Independence In Increasingly Ridiculous Ways

The final own-goal-kick this week—actually, in honor of Wimbledon (did you see that women’s semifinal?—amazing tennis!), I should be talking about double faults!—is the most recent chapter in Fed attacks, which has two parts, each as dumb as they are harmful.

First, a quick reminder that when central banks fall under the authority of authoritarians, they jam interest rates down without regard for inflationary impacts: there is, IOW, a causal linkage between Fed independence and stable, anchored inflation. Tying this double fault to the one above, Trump explicitly said last week that given all the gov’t borrowing the new budget requires, Powell needs to lower the interest rate the Fed controls so it will be cheaper for the gov’t to service their increased debt.

That way lies madness overheating. The Fed’s mandate is unequivocal on this point: they are to set the interest rate they control to achieve full employment at stable prices, not to make it easier for the gov’t to pursue extremely reckless fiscal policy.

Double-fault one is Trump’s ongoing threat to try to undermine the Fed chair by elevating his choice for Powell’s replacement now, well ahead of May ‘26 when his term as chair is up. The idea is to make Powell some sort of lame duck, but—and this is just my opinion; I know of no historical references on which to judge this—I just don’t think Powell is lameduck-able. Whoever Trump names will have to be out there saying crazy stuff their master wants to hear about how the Fed should lower rates by 3 points, blah, blah, woof, woof. That won’t move the Fed board to do Trump’s bidding, but it will alert markets to just how much of a lackey is his chosen replacement.

The bigger and even nutsier threat is one that was featured yesterday in the WSJ:

The key word is “pretext,” which I take to mean a BS rationale, i.e., more pretense than pretext. You can read the story. I don’t have the patience to explain it here. I will summarize, however, with a true episode from my own life:

I told my wife, as per the contractor, that our kitchen renovation would cost $10,000. It ended up costing $12,000. Thankfully, she did not file for divorce based on my misleading her about the true cost.

In other words, the pretense is complete and utter BS. Here’s what actually matters:

“We are in a high-stakes moment in the history of the Federal Reserve,” said Peter Conti-Brown, a Fed scholar at the University of Pennsylvania. “It seems clear to me that the Trump administration, using various mechanisms, [has] now cooked up a post-hoc explanation for Powell’s removal.”

Investors have taken note because firing a Fed chair for political reasons would shatter decades of established norms that underpin global confidence in the U.S. dollar. “If President Trump and his allies launch this assault on the Fed, they will introduce profound instability into virtually every aspect of the global economy,” Conti-Brown said.

What a Week

There you have it, gentle readers. Four big, self-inflicted economic wounds, own-goal-kicks, double faults. And that’s just on the economy; there were other equally destructive moves in other sectors.

And we’re just talking about one week! Again, there’s no economy and no country that can absorb such a relentless onslaught without bending, if not breaking. If that worries you as much as it should, then please join me in promulgating all the above whenever and wherever you can while aggressively planning to repair the damage.