Experience Stern | Faculty & Research

Last December, I argued that while some of US President Donald Trump’s policies would be stagflationary (reducing growth and raising inflation), such effects would ultimately be mitigated by four factors: market discipline, an independent US Federal Reserve, the president’s own advisers, and the Republicans’ thin majorities in Congress.

The script has played out as predicted. The reaction from stock, bond, credit, and currency markets forced Trump not only to back down from his “reciprocal” tariffs against most of America’s trading partners, but also to beg China to sit down and negotiate. In the game of chicken between Trump and Chinese President Xi Jinping, Trump lost. Market traders trumped the tariffs, and bond vigilantes proved more powerful even than the US president – just as the political strategist James Carville observed a quarter-century ago.

Then came the game of chicken with Fed Chair Jerome Powell. Again, Trump was the first to blink – at least for now. Markets swooned when he suggested that he would fire Powell, and he soon backpedaled, declaring that he has “no intention” of doing so. Meanwhile, Powell has made clear that the president has no lawful authority to remove him.

Read the full Project Syndicate article.
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Nouriel Roubini is a Professor Emeritus of Economics and International Business and the Robert Stansky Research Faculty Fellow.