With financial markets recovering and recession fears gone, immigration may be disinflationary. A rise in U.S. immigration estimates has economists and investors reassessing the economy and inflation outlook, one of the most controversial subjects in this year's White House election.
Higher growth and fewer labor supply restrictions suggest an economic golden grail. President Joe Biden and potential opponent Donald Trump disagree on how to address the issue, so the new estimates sharpen November's race.
In its long-term economic and fiscal predictions issued last month, the Congressional Budget Office (CBO) estimated a 5.2 million workforce growth over the next decade due to rising net immigration, adding $7 trillion to economic production and $1 trillion to tax revenue.
In January, the non-partisan budget referee upped its net immigration projection by 8.3 million for the six years through 2026 using its 30-year demographic predictions.
I estimate the labor force to rise 2.6% in 2053 compared to last year. Due to declining fertility, net immigration will drive population growth beyond 2040. The economic impact of the migrant surge is huge while politicians argue its causes. Brookings economists reported last week. To understand the strong consumer spending and overall growth since 2022, Wendy Edelberg and Tara Watson examined the CBO revisions, which show 3.3 million net immigrants last year compared to 1 million pre-pandemic.
"For 2024 we estimate sustainable employment growth will be between 160,000 and 200,000, approximately double the sustainable level that would have occurred in absence of the pickup in immigration according to the pre-pandemic projections," adds.
AI may not be the only reason Wall St equities are at new highs. According to JPMorgan economists, the CBO predicts net foreign immigration returning to historical levels after 2026. They admit that immigration stimulates labor force expansion, even if not all are granted work permits.
A higher labor supply allows disinflation to continue without hurting GDP, improving the CBO's 10-year economic growth outlook to 2.0% from 1.9%. After 2026, CBO predicts stronger potential growth will settle inflation around 2.2%, where financial markets' long-term inflation predictions congeal. Increases capital return. The "real" 10-year Treasury rate is 1.9%, with an expected 4.1% by 2034.
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