Podcast Summary: "The Economic Stakes of President Trump’s Immigration Policy"

Podcast Information:
Title: Thoughts on the Market
Host/Authors: Michael Gapen and Sam Coffin, Morgan Stanley
Episode: The Economic Stakes of President Trump’s Immigration Policy
Release Date: June 13, 2025

Introduction

In this episode of Thoughts on the Market, Morgan Stanley's Chief U.S. Economist, Michael Gapen, and Senior Economist, Sam Coffin, delve into the economic ramifications of President Trump’s stringent immigration policies. The discussion centers on the impact of immigration reform on the U.S. labor market and its subsequent influence on Federal Reserve policy.

Recent Immigration Data: Border Encounters and Interior Removals

Michael Gapen opens the discussion by addressing recent administration data on border encounters and interior removals.

• Decline in Border Encounters:

  "What we saw at first was border encounters falling sharply to 30,000 a month from 200 or 300,000 a month last year. It was perhaps a surprise that they fell that sharply."
  — Sam Coffin [01:07]

• Challenges in Interior Removals:
  The administration's targets for interior removals have fallen short. While the goal was to remove 500,000 individuals annually (approximately 1,500 per day), current figures indicate only a third to half of that target is being met.

  "They'd been targeting maybe 500,000 per year in removals, 1,500 a day, and we're hitting a third or a half of that pace."
  — Sam Coffin [01:33]

Escalation in ICE Enforcement

The underperformance in interior removals appears to be prompting increased ICE raids. Gapen suggests that these escalations are a direct response to the administration's unmet removal targets.

• Increased Funding for ICE:
  The House budget reconciliation bill proposes an additional $155 billion for ICE, representing a significant boost over the current budget. This funding is allocated equally between stricter border enforcement and expanding ICE operations through new agents and enhanced operations.

  "It would be about a fivefold increase in funding."
  — Sam Coffin [02:08]

Impact on Visa Programs: CHNV Parole and TPS

The conversation shifts to two critical visa programs affected by the administration’s immigration controls: the CHNV parole program and Temporary Protected Status (TPS).

• CHNV Parole Program:
  This program has allowed approximately 500,000 Cubans, Haitians, Nicaraguans, and Venezuelans to enter the U.S. on parole. Following a recent Supreme Court ruling, the administration can now revoke these paroles.

  "We expect now that those 500,000 are probably removed from the country over the next six months or so."
  — Sam Coffin [03:21]

• Temporary Protected Status (TPS):
  About 800,000 individuals currently hold TPS. The administration plans to revoke approximately 600,000 of these statuses imminently, leading to deportations of a few hundred thousand within this year and the remainder the following year.

  "The result is net immigration probably falling to 300,000 people this year."
  — Sam Coffin [04:19]

Implications for Population Growth and Labor Force

The reduction in immigration is poised to significantly slow population growth and, by extension, labor force expansion.

• Declining Population Growth:
  Pre-pandemic population growth was at 0.5–0.75% annually. During peak immigration periods, this rate surged to approximately 1.25%. With current policies, expected population growth is projected to decrease to between 0.3% and 0.4% over the next few years.

  "Population growth before the pandemic was running half to three-quarter percent per year... it accelerates one, one and a quarter percent during the years of the fastest immigration."
  — Sam Coffin [04:34]

Labor Market Effects and Unemployment Rate Projections

The stagnation in labor force growth has direct implications for the unemployment rate and overall labor market health.

• Payroll Growth and Unemployment:
  Last year’s payroll growth of approximately 200,000 per month kept the unemployment rate steady. This year, payroll growth has slowed to 160-170,000 per month, maintaining the unemployment rate at 4.2%. With further reductions, payroll growth is expected to decrease to around 70,000 per month.

  "So much slower payrolls to hold the unemployment rate flat."
  — Sam Coffin [05:10]

• Unemployment Rate Projections:
  As payroll growth continues to wane, the unemployment rate is anticipated to inch up to 4.3% by year-end and potentially rise to 4.8% by the end of the next year.

  "We also expect weak payroll growth of about 50,000 a month, but the unemployment rate rising somewhat more to 4.8% by the end of the year."
  — Sam Coffin [06:45]

Potential Growth and Economic Outlook

Slower immigration is expected to exert downward pressure on the U.S. economy's potential growth.

• GDP Potential:
  Previously estimated between 2.5% and 3% from 2022-2024, potential GDP growth is now projected to decrease to around 2.0%, potentially falling further to 1.5% next year if current immigration trends continue.

  "We have it falling to about a point to 0.3%, 0.4% population growth over the next couple of years."
  — Sam Coffin [04:55]

Labor Force Participation and Chilling Effects

A notable decline in labor force participation was observed in the May job report, which may indicate underlying weaknesses in the labor market not immediately reflected in unemployment statistics.

• Chilling Effect on Undocumented Workers:
  The threat of increased deportations may discourage undocumented workers from participating in the labor force, causing a hidden contraction in labor market engagement.

  "It's possible that undocumented workers are stepping out of the workforce temporarily to avoid detection..."
  — Sam Coffin [08:36]

  This potential withdrawal could mean that the reported unemployment rate of 4.2% is masking deeper labor market vulnerabilities.

Federal Reserve Policy Implications

The interplay between immigration policy and economic indicators is expected to influence the Federal Reserve's actions regarding interest rates.

• Delayed Fed Response:
  With immigration controls contributing to slower labor force growth and subdued unemployment rate increases, the Fed may postpone discussions of interest rate cuts until 2026, contrary to earlier predictions of cuts starting in March of the following year.

  "This is why we think the Fed moves later, but ultimately cuts more. It's a combination of tariffs and immigration."
  — Sam Coffin [09:28]

  "Our baseline is that tariffs push inflation higher first... the Fed just stays on hold and it's not until the unemployment rate starts rising in 2026 that the Fed turns to cuts."
  — Michael Gapen [09:36]

Conclusion

Michael Gapen and Sam Coffin conclude by acknowledging the fluid nature of the current immigration policy landscape and its evolving economic implications. They emphasize the importance of monitoring policy developments closely, as changes could significantly alter economic forecasts and Federal Reserve strategies.

Notable Quotes:

• Sam Coffin [01:07]: "What we saw at first was border encounters falling sharply to 30,000 a month from 200 or 300,000 a month last year. It was perhaps a surprise that they fell that sharply."

• Sam Coffin [02:08]: "It would be about a fivefold increase in funding."

• Sam Coffin [03:21]: "We expect now that those 500,000 are probably removed from the country over the next six months or so."

• Michael Gapen [09:36]: "Our baseline is that tariffs push inflation higher first... the Fed just stays on hold and it's not until the unemployment rate starts rising in 2026 that the Fed turns to cuts."

This comprehensive summary encapsulates the critical discussions from the podcast episode, providing insights into how President Trump’s immigration policies are reshaping the U.S. economy, labor market dynamics, and Federal Reserve policies.