Wall Street Week Powell’s Catch-22 | The Fed Decision, IRS cutbacks, Ireland’s Corporate Tax
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May 9, 2025 Lawrence H. Summers, a Harvard economist and former Treasury Secretary, joins economist Kenneth Rogoff to explore the delicate balance of U.S. monetary policy amidst inflation and unemployment risks. They discuss the ramifications of Trump's policies on the IRS and the challenges posed by recent budget cuts. Summers delves into Ireland's low corporate tax strategy, which attracts U.S. companies, while examining how tariffs could impact this dynamic and what it means for American jobs and corporate tax behavior.
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Fed's Catch-22 With Tariffs
- The Federal Reserve faces a Catch-22 with tariffs causing inflation and slowing growth simultaneously.
- It must balance risks of inflation and unemployment without clear knowledge which effect will dominate.
Fed Focuses On Price Stability
- The Fed's primary obligation is to maintain price stability to prevent runaway inflation expectations.
- Inflation risk often outweighs the risk of short-term unemployment increases in policy decisions.
Fed Independence Under Pressure
- Fed Chair Jay Powell has maintained independence despite presidential pressure to cut rates.
- Fed independence is not guaranteed by the Constitution and could be altered by Congress if aligned politically.
