Kevin Hassett on Tariffs, Economy, and New York Fed Study

Rebuttal of New York Fed Study on Tariffs

• 💡 Kevin Hassett strongly criticizes a New York Federal Reserve paper claiming 90% of tariff burden falls on US firms and consumers, calling it an "embarrassment" and the "worst paper" in Fed history.
• 🧠 The paper's analysis is deemed partisan and flawed, failing to account for shifts in quantities and producer/consumer surplus, concepts basic to economic theory.
• 📉 Hassett argues that the study incorrectly assumes quantities don't move, ignoring how tariffs can onshore production, create US jobs, and ultimately benefit American consumers.

Economic Impact of Tariffs

• 📈 Data cited includes falling prices, a drop in import prices, and a $1,400 average real wage increase for consumers last year, contradicting the study's findings.
• 💰 Tariff revenues are presented as a way for corporations to provide revenue to the US government, potentially reducing the deficit.
• ⚠️ While acknowledging potential price increases for some goods, Hassett expects companies to lose customers if they pass on tariff costs, similar to the previous year's trend.

Affordability and Wage Growth

• 📊 Hassett asserts that incomes are up significantly more than the cost of living, leading to real wage gains that benefit consumers, particularly those at the lower end.
• 💰 He highlights that job creation from Trump's policies is targeted at individuals who previously lacked employment, directly benefiting the people at the bottom.
• 🗓️ Wage adjustments, often occurring in January, mean that the full positive impact of policies on people's wallets is realized over time, aligning with recent positive survey data.

Economic Outlook and Modeling

• 🚀 Hassett models aggregate supply at approximately 5% growth (3% productivity, 1-1.5% capital stock, 0.5% workers) and aggregate demand around 7%, suggesting potential for 2% inflation and 5% GDP growth.
• 📈 He notes consistent productivity gains in the threes, making GDP growth north of four highly probable.
• ✅ The overall economic narrative is presented as very positive, with unemployment near full employment and inflation approaching the 2% target.