Why the Fed should not have to intervene in inflation

With reference to the piece of Sam Fleming and his colleagues, entitled “The threat of commercial war separates central banks” (ReportFebruary 7), the concern posed by the article, which the Federal Reserve is increasing economy.

The concern of the Fed officials that President Donald Trump’s policies about rates and immigration will envive inflation not necessarily justified. Nor does his concern about the potentially inflationary effect of tax cuts, reflected in John Llewellyn’s appointment, a partner of the independent economy, a consulting, that “everything that President Trump says he will do is inflation, certainly tariffs, certainly tax cuts. ”

Unique price changes are clearly manageable by an economy whose “opening index” is only about 25 percent of GDP according to the collection of World Bank development indicators. This is much lower than the global average of approximately 58 percent, and this does not require that the Fed intervene, provided there are no side effects or derived from the first order impact.

Regarding the inflationary impact of tax cuts, this policy cannot be seen in isolation, but should be seen in the context of the general budget.

The expenses of expenses financed by immediate reductions in the inductive expenditure of the government, as proposed by the efficiency department of the Trump Government (Doge) that reduce the budget deficit, can increase production. This happens by increasing demand through the increase in available income, which encourages companies to hire workers and invest more.

Such effects are aggravated by the uninflationary impact of the deregulation that Trump is committed to achievement.

Michael G Mimicopoulos
Former senior economist, United Nations
New York, NY, USA.