Introducing

Joel Prakken

Joel Prakken is past Chief US Economist of S&P Global and IHS Markit, co-founder of Macroeconomic Advisers, and past president and director of the National Association for Business Economics. He has served as an outside advisor to the Congressional Budget Office, on the Advisory Panel of the Bureau of Economic Analysis, and as a consultant to the Joint Committe on Taxation.  He holds a bachelor's degree in economics from Princeton University and a PhD in economics from Washington University in Saint Louis.

Publications by Joel Prakken

• USA| Jun 10 2025

  On the One Hand, OBBBA; On the Other, Tariffs

  Before the 2024 presidential election my uncontroversial view of the near-term economic outlook was that real GP would grow near 2% for the next few years with the economy remaining near full employment, inflation subsiding towards 2%, and the Fed gradually cutting its policy rate. I assumed the personal provisions of the Tax Cuts and Jobs Act (TCJA) would be extended beyond 2025, and that both the limitations on state and local tax (SALT) deductions and the temporary business provisions in TCJA would sunset as scheduled under current law.

  Now Congress is debating the One Big Beautiful Bill Act (OBBBA) while courts decide the legality of new tariffs imposed by the Trump Administration. Here I offer thoughts on how, directionally, these policies, if enacted, would shift my view of the near-term outlook for real GDP growth. To organize my discussion, I’ll group the policies like this:
  • OBBBA o Extend TCJA o New tax cuts o New tax increases o Increased spending by the Department of Homeland Security o Spending cuts, including Medicaid • New tariffs

  Let’s begin by asking how much failure to extend TCJA might undermine near-term growth. I’m skeptical of estimates suggesting the impact to be large but, given limitations here on space, a picture is worth thousands of words. The nearby chart shows annual real GDP growth from 2011 through 2024, including the first two years (2018 and 2019) when TCJA was in effect, but before COVID punctuated the near-term outlook. Then, like today, the economy was near full employment with inflation near the Fed’s 2% target. I don’t see a significant pickup in growth during those two years even though, as its centerpiece, TCJA cut the corporate tax rate to 21% permanently. Perhaps not all ceteris are paribus here, but would I expect failure to extend the other provisions of TCJA to have a big negative impact on near-term growth? No and in any event, as mentioned above, I expected the personal provisions of TCJA to be extended.

  To help finance the reduction in the corporate tax rate, TCJA made other business tax cuts temporary and also included subsequent business tax increases. For example, under current law “bonus depreciation,” which has fallen from 100% in 2018 to 30% in 2025, ends next year. Limitations on deductions for interest and depreciation of R&D expenditures were implemented in 2022 and 2024. Here OBBBA would not extend current policy but rather would revive the initial TCJA provisions for five years. It also makes the TCJA treatment of certain foreign earnings permanent. I’d not assumed these “extensions” of the business provisions of TCJA, so I consider them new tax breaks that would boost my forecast.

  by:Joel Prakken

  |in:Viewpoints
• USA| May 07 2025

  Tariffs, the Phillips Curve, and the Fed’s Cruel Dilemma

  In 1973, matriculating from Princeton, I submitted to William Branson my senior thesis entitled “The Nature of the Phillips Curve” in which I examined the trade-off between inflation and unemployment. I’ve been fascinated with the curve ever since.

  Thought on the curve has advanced over the years. Milton Friedman’s “natural rate” hypothesis became widely accepted, implying no long-run trade-off exists. Empirical representations of “sticky” prices and inflation expectations, once combined in lagged inflation rates, are now separated into a backward-looking component for sticky prices and a forward-looking component for (usually survey-based) long-term expectations. Successful monetary policy anchored inflation expectations near the Fed’s now-explicit 2% target, and with that success the slope of the curve flattened. Supply shocks, which temporarily worsen the short-run trade-off, have been added to the curve for food and energy prices, the exchange rate and, most recently, COVID-related disruptions to supply chains. But decades later, the dilemma for monetary policy presented by the Phillips Curve remains unchanged: in the short run, with expectations anchored, the Fed chooses between higher inflation or lower unemployment. The risk of choosing lower unemployment is expectations becoming unmoored, pushing inflation persistently above 2%. The risk of choosing lower inflation is recession.

  Today there is a new supply shock to consider: tariffs. Approximately 10% of “core” (excluding food and energy) personal consumption expenditures (PCE) are imports: 6% directly as final consumer goods, 4% indirectly as inputs to the production of final consumer goods and services. Hence, the 10% universal tariff threatened for July by the Trump Administration, if “passed through” entirely and immediately to consumers, would add approximately 4 percentage points to the annualized rate of core PCE inflation in the third quarter of this year. My own work suggests pass-through is delayed and incomplete, with about 75% of the tariff appearing in consumer prices within one year, and 88% within two years. Still, this would be a significant inflation shock. In could be squashed by tight monetary policy, but at what cost?

  Using a “modern” Phillips Curve for core PCE inflation described in 2016 by (then) Fed Chair Janet Yellen at the annual meeting of National Association for Business Economics, I explored the horns of the Fed’s current dilemma. First, I generated a baseline forecast assuming no tariffs, unemployment at 4%, and expectations at 2% (Chart 1). After 2025, baseline inflation (4-quarter percent change) fades fairly quickly to the Fed’s target. Then, I introduced a 10% tariff shock while assuming the Fed maintains unemployment at 4%, again with expectations at 2%. When the tariff is thusly “accommodated” by monetary policy, inflation remains above 3% through 2026, and above 2.5% through 2027 – high enough and for long enough to make any central banker uncomfortable. Would expectations remain anchored at 2%? Perhaps, even probably, so: they did during the much bigger COVID-era price shock.

  by:Joel Prakken

  |in:Viewpoints
• USA| Mar 31 2025

  Inflation and a 10% Tariff

  As the Trump Administration moves forward with tariffs on a range of imported goods, it is useful to establish a benchmark for the potential inflationary effects of tariffs. To do so I modeled the impact on the price index for domestic demand plus exports of a 10% tariff on all imported goods, one proposal of then-candidate Trump.

  First, some historical context. Chart 1 shows the average tariff rate on goods since 1929 and, for 2025, the rate implied by a new 10% tariff on all imported goods. Under the proposal, the rate jumps from 2.5% to 12.5%, a level not seen since the Great Depression, reminiscent of the infamous Smoot-Hawley tariff of 1930, and undoing decades of negotiations to reduce international barriers to trade.

  by:Joel Prakken

  |in:Viewpoints