Episode Details

Our Global Head of Fixed Income and Public Policy Research, Michael Zezas, joins our Chief U.S. Economist, Michael Gapen, to discuss the possible outcomes for President Trump’s immigration policies and their effect on the U.S. economy.

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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.

Michael Gapen: And I'm Michael Gapen, Chief U.S. Economist for Morgan Stanley.

Michael Zezas: Our topic today: President Trump's immigration policy and its economic ramifications.

It's Friday, February 14th at 10am in New York.

Michael, migration has always been considered an important feature of the global economy. In fact, you believe that strong immigration flows were an important element in the supply side rebound that set the stage for a U.S. soft landing. If we think back to the time before President Trump took office almost a month ago, how would you categorize immigration trends then?

Michael Gapen: So, we saw a very sharp increase in immigration coming out of the pandemic. I would say, if you look at longer term averages, say the 20 years leading up to the pandemic, normally we'd get about a million and a half immigrants, per year into the United States. A lot of variation around that number, but that was the long-term average.

In 2022 through 2024, we saw immigration surge to about 3 million per year. So about twice as fast as we saw normally. And that happened at a very important time. It allowed for very significant and rapid growth in the labor force, just at a time when the economy was emerging from the pandemic and demand for labor was quite high.

So, it filled that labor demand. It allowed the economy to grow rapidly, while at the same time helping to keep wages lower and inflation starting to come down. So, I do think it was a major underpinning force in the ability of the U.S. economy to soft land after several years of above target inflation.

Michael Zezas: Got it. And so now, with a second President Trump term, are we set up for a reversal of this immigration driven boost to the economy?

Michael Gapen: Yeah, I think that's the key question for the outlook, and our answer is yes. That if we are going to significantly restrict immigration flows, the risk here is that we reverse the trends that we've just seen in the previous year.

So, I certainly believe one of the main goals of the Trump administration is to harden the border and initiate greater deportations. And these steps in my mind come on the back of steps that the Biden administration already took around the middle of last year that began to slow immigration flows.

So yes, I do think we should look for a reversal of the immigration driven boost to