Lacy Hunt: The Economy Is Seizing Up While The Fed Dithers
A deflationary illiquidity process is our real economic threat here
It's an especially confusing time for investors given how divided the experts are on whether re-surging inflation or disinflation/deflation is more likely from here.
Your answer to this question determines whether you think the Federal Reserve starting to cut interests rates is a good idea or not.
Today's guest has very strong views on this matter, based on a lifetime of study.
For perspective, we have the great fortune today to sit down with one of the greatest living economists, Lacy Hunt, former senior economist for the Federal Reserve Bank of Dallas and current Executive Vice President of Hoisington Investment Management Company.
Lacy warns a deflationary illiquidity process is our real economic threat here. But the Fed is taking far too long to respond adequately to address it.
To understand the potential ramifications, click here or on the video below:
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Adam’s Notes: Lacy Hunt (recorded 8.29.25)
EXECUTIVE SUMMARY:
Fiscal Policy Restrictiveness: Lacy Hunt views current fiscal policy as highly restrictive, with the Big Beautiful Bill Act’s $3.4 trillion stimulus offset by $3 trillion in expenditure reductions and $3 trillion in tariff revenues, netting minimal economic stimulus.
Tariff-Induced Deflationary Spiral: Tariffs, with a price elasticity of 3, reduce demand significantly, leading to margin squeezes, reduced liquidity, and a Kindleberger spiral, reminiscent of 1929–1939, potentially causing deflation.
Federal Reserve’s Missteps: The Fed’s data-dependent approach relies on flawed data (e.g., payroll overshoots vs. QCEW), ignoring
