For now, the Federal Reserve appears to be the only game in town to suppress inflation.
The Fed has raised interest rates by 3 percentage points since March to fight an 8.3% rise in consumer prices in the 12 months through August.
But hedge fund star Bill Ackman, CEO of Pershing Square Capital Management, has another idea.
“Why not underestimate the Fed’s need to raise interest rates by expanding immigration now?” wrote on Twitter.
Doesn’t it make more sense to ease wage inflation while increasing immigration than to raise rates, destroy demand, put people out of work, and cause recession? Akman tweeted.
Average hourly wages rose 5.2% in the 12 months through August.
Of course, Republicans are not enthusiastic about the idea of boosting immigration. Earlier this month, Texas Governor Greg Abbott and Florida Governor Ron DeSantis teamed up to send immigrants from Texas to Massachusetts, a move whose legality is questionable.
In any case, Ackman sees strong economic support for his idea.
“Inflation can be mitigated by reducing demand and/or increasing supply,” he wrote on Twitter. The Fed can reduce demand only by raising interest rates, which is a very blunt tool. Wage inflation is likely to continue until rates rise to restrictive levels.”
Goldman Sachs Show
Goldman Sachs agrees with Ackman that increased immigration would help mitigate inflation. “The largest gap between available jobs and available workers in post-war history is one of the main reasons for high inflation in the United States,” the bank said in a May 31 report.
“The drop in immigration has helped widen the gap, suggesting that an increase in foreign-born workers can help contain the rise in wages and prices.”
The pandemic and the Trump administration’s restrictions cut immigration from 2019 to 2021. That has left the workforce of about 1.6 million people smaller than their pandemic trend would have dictated, Goldman notes.
“While green card issuance and temporary work visas have recently recovered to roughly their previous levels, immigration rates will need to increase even more to make up for the shortfall.”
It is certainly unlikely that the US government would raise annual immigration to more than a few hundred thousand people, Goldman said. This would have a ‘modest effect’ on [labor] deficiency, but it is not enough to close it. ”
Thus, the Fed will still bear most of the burden to curb wage inflation — “by raising interest rates enough to slow the economy,” the bank said.
On the bright side, the added bonus of boosting immigration is the help it can provide to some Russian citizens and the damage it can do to the Russian government, Ackman said.
“Let’s remove the barriers to the brightest Russians,” he wrote on Twitter. The most talented Russians must leave now before they are fodder for an unjust war. Doing so saves our economy and destroys Russia’s future.”
So, “If we can target immigration policy to achieve important political goals such as stimulating the drain of Russian talent to the United States, why not do it?” Akman tweeted.