Markets respond to immigration policy and trade policy differently. Should they?
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What's the biggest risk to the economy right now? The Fed has to choose.

From Marketplace, I'm Sabri Beneshour in for David Brancaccio. The Federal Reserve is meeting this week, and as it takes a look at the U.S. economy, it is legally required to worry about two things, keeping as many people employed as possible and keeping inflation under control. So lots going on that could affect both. The latest being conflict in the Middle East affecting oil prices. Julia Coronado joins us now. She's founder of Macro Policy Perspectives. Julia, which one is the bigger risk, inflation or unemployment? Well,

Well, the problem for the Fed is they don't know yet which is the greater risk. What we do know is that they've been running above their inflation target for more than four years now. And while we got good news on inflation last week for May, it's still too early to see the impact of tariffs. And as you mentioned, now we have the prospect of higher oil prices. So they really don't know whether the greater risk to the economy is a slowdown from all of the

things buffeting the economy, the changes in policy, the trade war, or higher inflation. And so I think they're just going to continue to be in wait and see mode. Let's move to the world's second largest economy, China. Tariffs are showing up in the data. Their factory output growth is down, but retail sales there, consumers doing much better than expected.

Why would that be happening? Well, China is prepared for a drawn out battle on tariffs. What they have done is try to offset the inevitable hit to their manufacturing sector from the trade war and tariffs.

by boosting their consumers with fiscal stimulus. So we see that combination in the data. Spending up a little bit, that helps offset what is a pretty sizable drag to their manufacturing sector from tariffs. Julia Coronado, founder and president of Macro Policy Perspectives. Thank you so much. My pleasure.

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Despite continued protests over immigration policy, President Trump in an online post yesterday directed immigration enforcement to deport more people in the country illegally, specifically those in major cities like Los Angeles, Chicago and New York. This is also despite multiple published reports that the administration has asked immigration officials to pause raids on workplaces like farms and hotels.

We're continuing to track what more restrictive immigration policy could mean for the U.S. economy. Zeke Hernandez is a professor at the University of Pennsylvania's Wharton School. He spoke with my colleague, David Brancaccio. When tariff policy was enacted, the markets, especially the bond market, threw a fit with immigration raids increasing and protests in the national headlines. Markets don't seem to be as concerned. They're not

focused on this policy, I don't think in the same way as tariffs. It's almost seen as a social or cultural story, but you say it is very much economic as well. I think there's a difference in that the effects of tariffs are very easy to understand. They happen quickly. They're highly visible, right?

The evidence on the economic importance of immigration isn't as widely disseminated, and we can list five ways in which immigrants affect you directly. One is that they bring innovation. Two, they bring consumption. Three, investment. Four, talent. And five, taxes.

And those numbers are pretty large. If you were an investor or someone watching the market, you would react to these things. And there are people who are very focused on a piece of this, which is preserving or bolstering jobs for native-born Americans.

The data is actually quite interesting about the interplay of immigration and the jobs of Americans. Yeah, and it's very clear, but perhaps in the opposite way that sometimes politicians and the headlines communicate, which is that immigrants are net job creators, not net job destroyers.

Both of these high tariffs and immigration reductions are a really powerful one to negative punch to the economy because you are increasing the price of intermediate and final goods and you are contracting labor supply. Those two things put together are highly inflationary and end up contracting the economy in ways that take away jobs for everybody. We're not seeing that contraction just yet. It's speculative. The economy has proven quite resilient.

One of the reasons we're not seeing it yet is that the tariffs have not really been officially implemented, right? We keep hearing rumors and then they're scaled back and then there's a threat and then there's an announcement of a deal that's not really a deal. The same with immigration. We haven't seen mass expulsions. If the stated policies on both tariffs and immigration take place, then we will start seeing this. Do you worry that we sometimes fail to, in a discussion like this, fully distinguish between...

illegal immigration and legal immigration? I mean, we've been talking about immigration in the aggregate. The objection among some Americans is to people here without permission. And how do you parse that? The undocumented immigrants that come into this country, strictly speaking, when it comes to the economy, they provide all those five things I spoke about earlier. And we need those people. Of course,

we want them and prefer them to come in through a legal orderly channel. But I think once we understand that our legal system does not provide enough people and that the illegal channel is in some ways a dysfunctional response to how constrained the legal system is, we see that there's a very tight relationship between the two. And so part of what troubles me is

is that you can talk all you want about cracking down on illegal immigration, but if you don't simultaneously change the system, which there have been no substantive proposals to change the system, you're not going to solve the problem. You're going to only make it worse, particularly economically for the pocketbooks and jobs of Americans. Zeke Hernandez teaches at the University of Pennsylvania's Wharton School. He's author of the book, The Truth About Immigration, Why Successful Societies Welcome Newcomers.

Professor, thank you. Thank you for having me on. That was Professor Zeke Hernandez speaking with Marketplace's David Brancaccio. In New York, I'm Sabri Beneshour with the Marketplace Morning Report from APM American Public Media.

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