"US population could post its first decline in more than 100 years…Inflation may reach 4.5% this year" [People on Wall Street, interviewed by Park Shin-young]

Analysis by Ira Kalish, Deloitte chief economist

Trump immigration policy raises possibility of first US population decline since 1918

Inflation could reach 4.5% if companies start passing through tariffs

AI-led stock gains lift spending by the top 10%, underpinning the US economy

The possibility has been raised that the US population may have declined for the first time since the 1918 Spanish flu. Warnings are also growing that a shrinking labor force could lead to slower hiring and intensify inflation pressures, pushing US inflation to as high as 4.5% this year.

Ira Kalish, Deloitte’s chief global economist, made the remarks in an interview with The Korea Economic Daily and during a session at the National Retail Federation (NRF) on the 12th (local time).

Kalish, who holds a PhD in international economics from Johns Hopkins University, is a veteran who has worked across academia and consulting, including as a researcher at the Peterson Institute for International Economics (PIIE) and as a director at PwC. He is widely regarded as adept at identifying macro trends where demographics and technological change intersect, going beyond simple indicator analysis.

Growth without jobs

Kalish noted that the US could face a population decline due to its hardline immigration policies. “An estimated about 500,000 people left the United States last year,” he said, adding that “some statistics also suggest the possibility that the total US population actually declined in 2025.”

He stressed that the recent sharp slowdown in US private-sector job growth is not simply the result of weakening labor demand, but because labor supply itself is shrinking. If the US population did fall year on year in 2025, it would be the first such decline since the mass deaths caused by the 1918 Spanish flu.

Kalish said that unless US productivity improves sharply, a shrinking labor force will inevitably translate into slower growth. “In fact, the US economy posted a relatively high growth rate last year, but job growth was almost nonexistent. That implies a surge in productivity,” he explained.

Prolonged tariffs could lift inflation

Kalish forecast that US inflation could climb to as high as 4.5% this year, citing tariffs as a key driver. “So far, the rise in inflation has been limited because companies are only reflecting about 10% of tariff costs in consumer prices,” he said. “Imports were front-loaded before tariffs took effect, and companies have absorbed costs by squeezing margins on the assumption tariffs would be temporary.”

As expectations spread that tariffs will persist, he added, that strategy will be difficult to sustain. “By year-end, inflation could rise to around 4–4.5%,” he said.

He argued the problem is more serious because a large share of US imports are intermediate goods rather than final goods.

Tariffs on finished products tend to be reflected immediately in consumer prices in a straightforward, one-step process. For example, if a 10% tariff is imposed on an imported home appliance priced at 1 million won, the final price paid by consumers would settle around 1.1 million won.

By contrast, tariffs on intermediate goods such as steel—basic industrial inputs—carry destructive power on a different scale. Higher imported steel prices push up auto parts prices, which in turn raise manufacturing costs at vehicle assembly plants. Once margins and logistics costs are added at each distribution stage, the final price increase faced by consumers can far exceed the initial 10% tariff rate.

“Tariffs are raising intermediate-goods prices and worsening cost structures across manufacturing,” Kalish said. “As a result, US manufacturers are cutting jobs to reduce costs, and manufacturing employment has shown a steady decline since the tariff announcements.”

AI boom deepens consumption polarization

Kalish said the recent AI investment boom is propping up overall consumption indicators. Households in the top 10%, which hold most equity assets, have seen their spending capacity expand significantly as asset values rise.

By contrast, he said, the remaining 90% of US households face a different reality: pressure from high interest rates, rising food prices, utility burdens and growing debt.

Kalish also voiced concern about the possibility of an AI bubble. “If you look at the top 10 companies by market capitalization in the S&P 500, they are all technology companies,” he said. “Even 20 years ago, the biggest companies were spread fairly evenly across industries such as finance, energy, consumer goods and industrials. Now, risk is extremely concentrated in a single industry—among a handful of mega-cap tech companies.” In his view, excluding the top 10 tech firms, the performance of the rest of the market is not particularly impressive.

He also noted that credit spreads on these companies’ bonds have widened as they pour huge sums into building large-scale data centers to avoid falling behind in the AI race. “That could be a signal that the market is beginning to question the sustainability of their finances,” Kalish said.

He added that while past bubble bursts largely occurred when the US central bank (Fed) moved into tightening, the difference this time is that monetary policy is instead in a more accommodative phase.

“Even if a bubble is forming, it’s difficult to predict when it will burst,” he said, adding that “there is ample possibility that stock gains and large-scale investment will continue this year.”

Fed uncertainty also weighs on the economy

Kalish said uncertainty around the Fed’s monetary policy is rising again. “After maintaining a rate-cutting stance last year, the Fed paused for a time amid concerns that tariffs and immigration policies could stoke inflation, and then resumed cuts on the view that the price rise could be temporary,” he said.

More recently, however, he assessed that sentiment within the Fed has shifted back toward caution. “The Fed is signaling one rate cut this year, at most two, but it is not sending a clear signal beyond that,” he said.

He also pointed to divisions within the Fed. “Some officials believe rapid rate cuts are needed due to an economic slowdown, while others oppose further cuts, citing the risk that tariffs and immigration policy could fuel inflation,” he said. “That internal split is leaving uncertainty in financial markets.”

Political factors are also a burden, he added. “President Trump has pledged to appoint as the next Fed chair someone who is proactive about cutting rates,” Kalish said. “Traditionally the Fed has respected the chair’s views, but if the new chair’s stance differs sharply from other officials, internal conflict could surface publicly.”

“In that case, even if the Fed cuts short-term rates, markets may view it as excessive easing and long-term rates could rise instead,” he added. “An unusual situation could emerge in which financial conditions do not ease even after rates are cut.”

New York=Correspondent Park Shin-young nyusos@hankyung.com