STEVE INSKEEP, HOST:
The president-elect promised lower income taxes and also higher tariffs, which are taxes on imports. He also promised mass deportations, including many people who work in the United States.
MICHEL MARTIN, HOST:
Markets are already reacting to these economic proposals. The stock market surged yesterday on news of his win.
INSKEEP: NPR's Scott Horsley joins us now. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: OK. So how do Trump's economic policies line up with his promise the other day of a golden age in the United States?
HORSLEY: Well, it might have to be borrowed gold. Trump has promised to extend portions of the 2017 tax cut, which were set to expire next year. He's also called for additional cuts to corporate taxes. If Congress goes along, that could boost economic growth, but it's also likely to cut into government revenues and widen the federal deficit. The other centerpiece of Trump's economic platform, as you mentioned, is the blanket tariff on imports. Economist Michael Pugliese of Wells Fargo says that could be a drag on economic growth.
MICHAEL PUGLIESE: Tariffs are, first and foremost, a revenue raiser. It's a tax on imported goods that are brought into the United States. So the tax would make the goods cost more - right? - higher prices. I think the near-term impact would be slower economic growth, but it would also bring in revenue.
HORSLEY: Trump has sometimes boasted that his tariffs would raise so much revenue, they would pay for other parts of his agenda. Fiscal hawks, though, are skeptical. The Committee for a Responsible Federal Budget estimates that Trump's overall economic plans would add nearly $8 trillion to the federal debt over the next decade. So while the stock market rallied yesterday on prospects of a business-friendly White House, the bond market sagged under the expected weight of all that extra debt.
INSKEEP: I'm just thinking - Trump has made contradictory statements, saying he's going to raise tariffs so much that you won't even have to pay income taxes, but then also that companies will change their behavior in a way that they won't have to pay any tariffs. It becomes very confusing. So the bottom line is you borrow to make up the difference. What would the debt do to the government's borrowing costs?
HORSLEY: Well, it would grow. You know, the federal government's already spending more on interest payments than it does on defense or Medicare - or anything other than Social Security. If the government has to borrow a lot more money, that could raise the cost of borrowing for you and me. Mortgage rates typically follow the yield on 10-year Treasurys, which jumped sharply yesterday, so that could make buying a house even more expensive.
INSKEEP: What does the Federal Reserve do as it meets today on interest rates?
HORSLEY: The Fed sets short-term interest rates, which affect things like car loans or the cost of carrying a balance on your credit card. The central bank is expected to cut its benchmark interest rate by a quarter percentage point today. But Pugliese says the Fed may be more cautious going forward about cutting interest rates if these various Trump policies go into effect.
PUGLIESE: Based on this idea that, you know, if you're going to get some higher inflation from the tariffs, from tax cuts - we'll see on the growth side. It's going to depend on what actually gets implemented, plus the fact that the economic data have also just been trending a little bit better lately.
HORSLEY: You know, inflation, which was such a big driver of people's frustration with the economy, has been coming down. But economists say some of Trump's policies could actually raise prices. For example, he wants to deport millions of immigrants who are in the country illegally. If you're worried about the cost of groceries, deporting people who pick and process food is probably not the best answer.
INSKEEP: Is Trump going to respect the Fed's independence?
HORSLEY: (Laughter) We'll see. You know, the Fed is supposed to be insulated from political pressure. But Trump has never been shy about criticizing the central bank and its chairman, whom he appointed, if he doesn't like the way they're managing interest rates. Fed Chairman Jerome Powell has been pretty solid about not bowing to political pressure, but his term runs out in about a year and a half, and Trump will have an opportunity to nominate a more malleable successor.
INSKEEP: NPR's Scott Horsley, thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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