Weekly recap: Supreme Court and Trump Madness
Happy Friday! This week, the main figure in the US economy gathered at a friend’s briefing that made it clear—there’s still a strong disapproval of Trump’s actions. In August, the prices of items hit by tariffs dropped, disappointing those at the Kato Institute. Moreover, Americans again signaled their dissatisfaction with the Democratic economic strategy.
Here’s a simple summary of this week’s economic news—no need for painkillers.
Key Amicus Briefs
A group of former Federal Reserve Chairs, including Robert Rubin, Larry Summers, and Hank Paulson, along with many respected economists, have signed an Amicus Brief organized by Covington & Burling. The brief argues that “removing Governor Lisa D. Cook could endanger her autonomy and undermine public trust in the Fed while her removal is contested.”
That sounds pretty alarming, but I doubt the courts will take it too seriously. For starters, it doesn’t really present a legal case. This is more about the president’s policy discussions aimed at shielding federal governors from being ousted. Congress can enforce this through legislation. Although Congress states that the president has the authority for removals, perhaps the lofty ideals of American economics don’t fully support this approach. If it were to change, it might fall into Congress’s hands rather than the Supreme Court’s.
Still, even policy discussions seem weak. The main concern cited in the brief is the fear of removing a key official. This could cast doubt on the independence of the central bank, possibly shaking inflation expectations. These expectations are fleeting, and the theory is that actual inflation largely hinges on what people anticipate.
It’s hard to wrap your head around these arguments. The Fed’s autonomy is primarily protected by intricate systems. The Federal Open Market Committee, which includes the Fed chairman and its governors, oversees monetary policy. Governors serve staggered terms of 14 years and require Senate confirmation. The removal of one governor for a cause seems unlikely to lead to a collapse in public confidence.
Then there’s the assumption that Trump could somehow unsettle inflation expectations by exerting more influence on the Fed. That might make sense if Biden were affecting the Fed, given that he’s consistently downplayed the economic ramifications of inflation. Jerome Powell’s introduction as Fed Chairman came with promises of temporary inflation, presaging one of the worst inflationary periods in the past four decades, which might lead to shifts in inflation expectations. After all, many thought Trump would handle inflation better if re-elected, so why would public perception flip overnight?
Lastly, this whole model of expectation is a tricky one. Support among mainline economists is usually based on tangible evidence. In reality, it often rests on shaky foundations. Expectations serve as placeholders to rationalize why inflation behaves as it does, despite economic models suggesting otherwise. Instead of delving into complex analyses, they seem to have turned to the psychological factors at play.
Oh, and one more thing about the briefs—none of the signatories are fans of Trump’s economic nationalism or his broader “make America great again” vision. In fact, they are largely opposed to him. For instance, Hank Paulson, who served as Treasury Secretary under George Bush during the financial crisis, supported Hillary Clinton back in 2016.
In short, they’re all anti-Trump, even if some have ties to the Republican party in the past.
Tariffs and Price Drops
The Commerce Department released fresh data on the Personal Consumption Expenditure Price Index this Friday. Although inflation continues to exceed the Fed’s 2% target, tariffs aren’t the culprit. For two straight months, prices for durable goods, typically affected by tariffs, have dropped.
Critically, this decline isn’t due to a lack of demand. It’s not like people aren’t buying durable goods. In fact, consumer spending on these items grew by 0.9% once adjusted for inflation. Consumers are purchasing more durable products at lower prices.
This certainly challenged the notion that tariffs act as a tax on consumers. Even more striking is the evidence from the price tariff tracker. Managed by Harvard Business School’s price lab, it shows that since tariffs were announced, prices for imported goods in affected categories rose at a slower rate (only 1.13%) compared to domestic goods in non-affected categories. In other words, tariffs didn’t lead to a more substantial price increase than those on unaffected products. Over the year, tariff-affected imports increased by 2.41%, while domestic goods not subjected to tariffs rose by 2.76%.
But there’s more. Products made in the US within tariff-affected categories have seen prices fall by 0.67% since the announcement. That translates into a 1.42% annual drop.
If this trend continues, it wouldn’t be surprising to see Harvard discontinue the tracker. It’s quite the embarrassment for those who oppose tariffs.
Democrats in Economic Decline
Recent polls from Reuters/Ipsos indicate that, while the public isn’t exactly thrilled with Republican economic leadership, they still favor the GOP. About 34% of American adults believe Republicans have superior economic plans, whereas only 24% think the Democrats do. In a two-party system, that gap is significant.
One reason for this disparity seems to be that the Democratic Party lacks a clear economic agenda. This confusion extends even to the party leadership. They’ve clearly articulated their opposition to Trump and the Republican tax cuts, yet they haven’t shared a distinct, positive vision for the economy. Additionally, it’s unclear if they plan to abolish Trump’s tariffs or adjust taxes on certain groups. Consumers are left wondering how they plan to provide lower electricity and medical costs. The sad truth is that they either can’t articulate a vision or realize they are too unpopular to share one. So publicly, it appears to be a cycle of fear and aversion.
Understandably, Americans aren’t thrilled with this as an economic strategy.
