Federal Hiring Freeze Could Appease Markets

Dr. Jeffrey Roach, Chief Economist at LPL Financial, provides three key takeaways from the latest executive orders and the potential impacts on the economy.

Last Edited by: LPL Research

Last Updated: January 23, 2025

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Jeffrey Roach (00:05):

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with three key takeaways about the current macro landscape. First, federal hiring freeze could actually appease the markets. When President Trump instituted a federal hiring freeze in 2017, it had a noticeable impact on non-farm payrolls, which was worsened by budget pressures and some restructuring. The freeze aimed to reduce the size of the federal workforce, which led to a slowdown in hiring across various government agencies. So let's fast forward to this year. The executive order will likely affect the overall employment numbers as federal jobs are a significant component of non-farm payrolls. The hiring freeze should slow the growth of federal employment and should contribute to a temporary dip in non-farm payroll figures. President Trump is not unique in wanting to pause federal hiring upon taking office. Presidents Carter and Reagan both instituted hiring freezes, with the former halting recruitment three times in a four-year term.

Jeffrey Roach (01:08):

But in sum, a softer non-farm payroll print might be just what the doctor ordered for investors nervous about an overheating economy. Second, tariffs to initially impact the auto sector. One of the recent executive orders from January 20 included a memorandum ordering a review of U.S. trade policy. This memorandum directed federal agencies to evaluate trade policies and recommend potential remedies including tariffs on imports from countries like Canada, Mexico, and China. While the executive order did not immediately impose tariffs, it set the stage for potential future tariffs. The top imports from Mexico are autos and automotive parts, and the top from Canada are also vehicles and related items. So we should expect auto-related businesses will be the first to feel the pinch from any tariffs imposed. Third, inflation fears are likely overdone. Tariffs will likely prompt a one-time step up in inflation, but that's if and only if businesses are willing and able to pass on higher costs to consumers, which will lead to a jump in the price level.

Jeffrey Roach (02:17):

However, once this initial price increase happens, it doesn't continue to rise indefinitely. Instead, it prices stabilize at the new higher level. In other words, the tariff induced price increase is a one-time adjustment. After the initial shock, the economy adjusts to the new price levels and inflation returns to its normal rate driven by other factors. So think of it like this. It's a step up on your front porch. There's a sudden rise, the one-time price increase, but once you reach the top of the porch, you continue to move forward at the same level without climbing higher steps, that ongoing inflation. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.

 

Dr. Jeffrey Roach, Chief Economist at LPL Financial, provides three key takeaways from the latest executive orders and the potential impacts on the economy.

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