STEVE INSKEEP, HOST:
In his speech to Congress last night, President Trump blamed its predecessor for the state of the economy.
(SOUNDBITE OF SPEECH)
PRESIDENT DONALD TRUMP: We suffered the worst inflation in 48 years, but perhaps even in the history of our country. They're not sure. As president, I'm fighting every day to reverse this damage and make America affordable again.
INSKEEP: For the record, they are sure. Inflation has been higher in the 1970s and '80s, for example, but inflation did climb during President Biden's term before dropping again. What marks the start of this president's term is another factor - uncertainty.
David Wessel is director of the Hutchins Center at the Brookings Institution, and he's tracking that. David, good morning.
DAVID WESSEL: Good morning, Steve.
INSKEEP: I'm thinking of that old saying that business leaders say all the time - that they want predictability, certainty. They just want to know what the rules are. Is the president delivering that?
WESSEL: Not yet. I don't think we got much certainty last night. In a long speech, he repeated a lot of the proposals that he's already made. Look. The uncertainty thing is interesting. The future is always uncertain, of course. But this is different. President Trump, for instance, has announced that he wants to impose a 25% tariff on Mexico and Canada - supposed to be in effect right now. But then yesterday, Howard Lutnick, the commerce secretary, goes on TV and said, well, the president probably will announce something today that dilutes those tariffs based on conversations with Canada and Mexico. So it's unsettling to say the least.
There's actually a couple of economists from Northwestern and Stanford universities that have developed a policy uncertainty index. They measure it a variety of ways, and that index has soared since the election. It's higher than at any time since the onset of the COVID-19 pandemic.
INSKEEP: Wow. So people don't know what's coming. Does that matter to the economy?
WESSEL: Yeah. I think confidence matters. John Maynard Keynes, the great economist, talked about animal spirits. He said, our decision to do something positive can only be taken as a result of animal spirits, which he defined as a spontaneous urge to action rather than inaction. So we've seen consumer confidence fall. The Conference Board's latest monthly survey fell more in February since August 2021. The stock market's decline suggested investors are uneasy. The S&P 500 is down 3% so far this week, and it's reversed all the gains that followed President Trump's election. Target, the retail chain, said this week that its sales in February were down from last year, and it warned that, quote, "ongoing consumer uncertainty" plus tariffs will contribute to what it called a meaningful drop in its profits in the first quarter.
INSKEEP: One of the reasons I wanted to talk to you about this is because we had the economist Mark Zandi on the program yesterday, and he said the economy was, quote, "gagging" on the uncertainty created by Washington. So why would that be?
WESSEL: Well, the fear is - and Mark Zandi, for instance, like a lot of other forecasters, has slashed his growth forecast for the first quarter. The fear is that if everybody hesitates, if consumers say, I'm not sure what's going to happen with prices and tariffs, and maybe I know somebody who's laid off, that they will delay making purchases. And businesses - this is really important - might do the same thing. If you're not sure what the tariffs are going to do, if you're not sure what's happening on regulation, and everybody decides to hold off a bit on making a big investment, that could lead to a sharp slowdown in growth, even if there are other pro-business policies like less regulation or tariffs that protect your own business. So I think it's a pretty rough ride we're in for.
INSKEEP: OK. Well, we are certain that we got good analysis from David Wessel, who is director of the Hutchins Center at the Brookings Institution. David, thanks for waking up early - really appreciate it.
WESSEL: (Laughter) You're welcome. Transcript provided by NPR, Copyright NPR.
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