Thoughtful Money with Adam Taggart Lacy Hunt: The Economy Is Seizing Up While The Fed Dithers
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Aug 31, 2025 Lacy Hunt, former senior economist for the Federal Reserve Bank of Dallas, shares his deep insights on the economy's looming deflationary threat. He argues that the Federal Reserve is lagging in responding to urgent economic challenges, emphasizing the need for significant interest rate cuts. Hunt critiques current fiscal policies, discussing their implications on liquidity and tariffs. He warns about the risks of recession tied to outdated data and calls for reforms to better navigate today's economic complexities.
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Fiscal Policy Is Restrictive
- Lacy Hunt argues current U.S. fiscal policy is effectively restrictive despite headline stimulus figures.
- Much of the cited stimulus merely rolls over prior tax cuts and offsets occur via tariff revenue assumptions.
Tariffs Can Trigger Endogenous Deflation
- Tariffs hit price‑elastic global goods and trigger demand declines larger than price increases.
- That margin squeeze forces firms to cut inputs, producing endogenous liquidity shocks and deflationary pressure.
Trade Improvement Can Reduce Global Liquidity
- Improving the trade balance worsens the capital account and reduces foreign saving flowing into U.S. assets.
- That reversal further depresses liquidity and can amplify a Kindleberger spiral toward deflation.
