Jason Reed is The Wade Family associate teaching professor and associate Faculty Director for the Notre Dame Institute for Global Investing.
Professor Reed teaches FIN 40640 Applied Investment Management (AIM) and FIN 40610 Security Analysis. He has recently been awarded the Rev. Edmund P. Joyce, C.S.C., Award for Excellence in Undergraduate Teaching (2023), the James Dincolo Outstanding Undergraduate Professor Award (2023), and the James Dincolo Outstanding Undergraduate Finance Professor (2018).
Reed’s research focuses on the integration of behavioural economics into the fields of macroeconomics and finance. His papers have been published in the Journal of Macroeconomics, and his comments have been cited in the Wall Street Journal, Fox News Business, and The Guardian.
In an exclusive interview with International Finance, Professor Jason Reed discusses a range of topics, including the US economy, the job market, proposed tariffs on Canada and Mexico, the Fed’s recent policies, and more.
Recent reports indicate that the US economy could face new inflationary pressures if the administration fully implements tariffs on Chinese imports. How do you assess the potential impact of these tariffs on consumer prices and overall inflation?
President Donald Trump’s economic agenda recently included another 10% tariff on Chinese imports, set to go into effect on March 4th. For products that can’t be easily reshored, American consumers will bear the burden of higher prices. We must remember that tariffs are simply taxes on imported goods, and like a sales tax, the cost falls to consumers, not businesses. The Tax Foundation recently estimated the long-term impact would be a decline in GDP of 0.1% per year, or $374 billion over 10 years. American families are expected to see reductions in their income of 2.2% through 2026, compounding the impact.
Despite low unemployment rates, securing jobs has become increasingly difficult, especially for young college graduates. What factors do you believe are contributing to this “Big Freeze” in the job market, and what measures can be taken to address it?
American firms have resorted to eliminating open positions, reducing hiring, and shrinking labour hours before laying off workers. New entrants into the labour market are considered frictionally employed, adding to what economists view as the natural unemployment rate. Young college graduates and MBA alums alike are finding it harder to gain employment. Typically, there is an ebb and flow to employment, where new workers slot into jobs that were left voluntarily; however, workers aren’t confident in the labour market and are staying at their jobs longer than in recent history. This has been a trend since the middle of 2022 when the labour market saw a record high of over 12 million job openings. The unemployment rate has remained relatively low and constant because of the excess supply of openings. Recent data shows that we’re almost back to pre-COVID levels, suggesting that if current trends continue, the unemployment rate may begin to tick upward. Another fiscal layer putting upward pressure on the unemployment rate is the efforts of D.O.G.E. and their reduction of the federal workforce. It’s not clear what the full ramifications of austerity will be, but I believe it will profoundly impact the growth and health of the economy.
The administration is considering imposing fees on Chinese-built or Chinese-flagged ships visiting US ports to counter China’s dominance in global shipbuilding. What are the potential economic implications of such fees on US retailers and manufacturers?
In the best-case scenario, imposing fees on Chinese-built or Chinese-flagged ships will immediately increase shipping costs, adding another price increase, borne by consumers. The most likely scenario, however, is that not only will we see prices increase, but we will also see short-term congestion in ports and shifts in global trade patterns, likely compounding the price increases. Estimates suggest that this import tariff will impact about 80% of cargo ships calling at US ports, which may lead to containerships porting in Mexico and Canada, further impacting consumers. This proposal seems to be driving more imports through Mexico and Canada, which runs against President Trump’s goal of reducing imports from these nations.
Some market analysts have become more cautious about US stocks, citing weak economic data and policy uncertainty. How do you interpret the current stock market trends, and what advice would you offer to investors?
Throughout the second half of 2024 and into 2025, economic data has mostly come in better than expected, according to Citigroup’s economic surprise index, with the S&P 500 trending up over this time until reaching all-time highs in December 2024. Since then, President Trump’s inauguration and the flurry of executive orders that followed, US and global equity markets have reflected the volatility in fiscal policy and are in a holding pattern right now, trading sideways year-to-date. Markets are waiting to see if the Canadian, Mexican, and Chinese tariffs go into effect on March 4th or if there will be another round of delays and negotiations. Long-term investors can take advantage of this situation to invest capital back into this asset class, as long-term average returns have outpaced most other available asset classes. Short-term investors will continue to find attractive risk-adjusted returns in US Treasury bonds, taking advantage of short-term mispricings in UK and EU equity markets.
Recent surveys indicate that inflation fears, partly due to tariffs, are affecting consumer confidence. How do you perceive the current state of consumer confidence, and what steps can be taken to restore it?
Consumers are acutely aware of grocery store and gasoline prices and use those price changes as their inflation gauge. Since last year, consumers have seen a 53% increase in the price of eggs versus an overall 2.5% increase in food prices. The avian flu continues to contribute to pricing pressure, with the Trump administration outlining fiscal relief for farmers. Over the same time, consumers are struggling to unwind long-term inflation expectations, with expectations reaching roughly 3.5%, a 30-year high, which significantly outpaces the Federal Reserve’s target inflation rate of 2%. With new tariffs thrown into the mix, consumers are likely bracing for the worst. For consumers to regain confidence in the economy, the White House would have to peel back inflationary efforts, especially the stimulus refund that D.O.G.E. is planning.
Proposed tariffs on Canada and Mexico are expected to impose significant costs on the US economy, potentially driving up prices for essential goods. What is your stance on these tariffs, and how do you anticipate they will affect the broader economy?
I think these tariffs will be inflationary in the short run. There’s almost no economic theory that suggests otherwise. In the long run, however, the broader impacts are yet to be seen. If businesses believe that tariffs will be repealed after President Trump’s term, they may choose to weather some revenue declines rather than reinvest into lower-returning reshored production. Another likely outcome will be that businesses will use countries’ production capabilities that bypass the import taxes. The Trump administration is already planning for these changes by proposing taxes on Chinese-owned and operated cargo ships. I think customers will be worse off overall. We’ve already heard from some tech CEOs, and businesses, indicating consumers should expect price increases in the coming months. As these price increases begin to compound, voters will begin to question the choices of the current administration.
Despite recent challenges, the US economy has shown resilience with a 2.3% growth in the October-December quarter. What is your outlook for the US economy in the coming months, and what factors will be most influential?
Businesses almost surely will have expected President Trump’s tariff message, as it was a key campaign goal for his term. Firms that are dependent on imported inventories will likely get ahead of the March 4th deadline, while those that cannot will just have to price in the expected taxes. Current estimates for Q1 2025 suggest steep declines in real GDP, a sharp departure from the growth the US economy has seen in recent years. Part of this may be due to an import imbalance, as firms pull forward inventories ahead of the tariffs, but the larger factor will be consumers feeling the pinch and deciding to forgo purchases.
The Federal Reserve has been actively involved in managing inflation and economic stability. How do you evaluate the Fed’s recent policies, and what role do you see it playing in addressing current economic challenges?
The Federal Reserve, our nation’s central bank, is committed to stable prices, targeting a flexible average inflation rate of 2% and maximum employment. In response to recent inflationary pressures, Jerome Powell and the Federal Open Market Committee (FOMC) have decided on a series of hikes to the federal funds rate, which helps to determine mortgage and credit card rates, among others. Hiking from March 2022 to August 2023, until rates reached the target range of 5.25 to 5.5%, it wasn’t until a year later that rates began to decline by 100 basis points. The Federal Reserve still sees inflation as its primary concern and believes the labour market can withstand persistently higher rates. The Federal Reserve aims to act independently from the White House. Jerome Powell and the Fed are committed to being reactionary to changes in fiscal policy rather than proactive in their approach to managing rates and will take a wait-and-see approach. If inflation materialises, as I and many economists predict, the Fed will likely delay rate cuts. The market is still pricing in about three rate cuts in 2025, even with inflation looming. If the Fed cuts rates, it won’t be until the second half of 2025 when more inflation data has landed. Treasury yields falling by 50 basis points from January 2025 should provide some slack for the Fed having to make immediate policy decisions. The market expects rates to remain steady at the March FOMC meeting. The Fed will continue to be data-dependent but is certainly cautious of the inflationary fiscal policy measures taken by President Trump.