Following Last Tuesday's election, economists are having a field day with forecasts and predictions. There is a "cautious optimism" among economists that Trump's snatching of the presidency will "knock the U.S. economy out of its low-altitude, low-growth orbit". Fear still remains that missteps in the White House will bring “us down into the atmosphere [in] a fiery re-entry”.
So what do 4 years of Trump mean for the U.S. economy?
Under republican executive and legislative branches, huge tax cuts and increased government spending on infrastructure will greatly boost GDP. Cutting taxes will increase consumption by the product of the change in tax and tax multiplier. The increase in government spending will result in a further increase in GDP by the product of the change in government spending and the government spending multiplier. All this is forecast to expand the economy by 2.2% in 2017 and 2.3% in 2018. "Inflation is seen at 2.2% next year and 2.4% in 2018", which "would be the first stretch of sustained inflation above 2% since before the recession of 2007 to 2009". This fits economic models, as the supply of money would increase from the fiscal stimulus.
The outlook of economists is still cautious, as there is still worry over "eliminating or significantly altering the Affordable Care Act", Potential for trade wars, and uncertainty in markets. 43% percent of economists cited a global trade war as the greatest risk to the U.S. Economy. Trump's plan to declare China a currency manipulator day 1, while potential for tariff implementation leaves economists cautious. Firms, in particular, continue to refrain from investing due to the uncertainty. Should interests rise under trump without positive sentiment affecting the market, investment, the most volatile variable in the GDP equation could continue to decrease.
It will be interesting to see what the trump presidency brings to our economy. One certainty is that there is no longer risk for stalling of our government with a unity between the senate, the house, and the presidency.
http://www.wsj.com/articles/gdp-inflation-and-interest-rates-forecast-to-rise-under-trump-presidency-1479054608
It's hard to predict the direction of the economy without first seeing the implementation and perspective Trump plans to take. Hopefully he's not erratic and provides a clear understanding of how he plans to tackle the next few years.
ReplyDeleteThe American Action Forum, a right-leaning policy institute based in Washington D.C., estimates that immediately and fully enforcing current immigration law, as Trump has suggested, would cost the federal government from $400 billion to $600 billion. It would shrink the labor force by 11 million workers, reduce the real GDP by $1.6 trillion and take 20 years to complete (Trump has said he could do it in 18 months).
ReplyDelete