What's Next under the Trump Administration?

posted by Robert Shapiro on December 13, 2016 - 1:03pm

The United States is poised to enter a more typical economic cycle than we’ve seen since the 1990s.  The Trump administration’s outsized tax cuts and plans to increase defense spending, and the virtual certainty that the GOP Congress will eagerly go along, will swell the US budget deficit and jumpstart faster growth. 

Stronger growth will be counterbalanced by two other forces.  First, productivity growth has stalled, and the Trump agenda will do little to revive it.  Second, the Federal Reserve is likely to respond large deficit and faster growth, especially in an environment of low unemployment, by initiating a period of conventional phased-in interest rate increase.  Based on past cycles, this will include 14 to 17 rate increases over three years; and under this scenario, the expansion will end by 2019.

Beyond this, most of the risks are on the downside.  Most troubling, of course, are the growing stresses on the EU; and the odds of the EU breaking down are not insignificant