Moody’s Sticks to Initial Assessment of Trump, US Economy

Before Donald Trump won the November election, many analysts were sharply critical of his economic proposals. Some predicted big declines in financial markets, hiring slowdowns and a heightened risk of recession.

But just a little more than a month since Trump became the 45th U.S. president, U.S. stocks have enjoyed the longest winning streak in decades, hiring continues to beat expectations and consumer confidence is soaring.

Were naysayers wrong?

VOA spoke with an early critic of Trump’s economic plans, Moody’s Analytics chief economist Mark Zandi, to ask him if the experts got it wrong.

Zandi’s answer was a crisp “No.”

 “If Mr. Trump got precisely what he wanted, the policy proposals that he had put forward, what would happen to economy? And the answer is, the economy would go into a deep recession.”

Zandi told VOA he stands by his initial assessment before Trump became president, saying that from a policy perspective, he has yet to deliver on his campaign promises.

“What he wanted was 11 million undocumented workers to leave the country. What he wanted was a 45 percent tariff on China, 35 percent on Mexico. What he wanted was tax cuts and government spending increases that would increase the budget deficit by $10 trillion over 10 years. So if that is what he got, that would lead to a recession. That hasn’t changed.”

Others see good signs

But others say the record run-up in stock prices reflects renewed investor optimism under Trump, much of it driven by expectations of corporate tax cuts and fewer regulations. PNC senior analyst Gus Faucher says it’s about higher profits in the short term.

“So they (investors) are expecting stronger U.S. economic growth under President Trump, both real growth — that is after inflation — but also perhaps higher inflation, and that’s going to boost profits as well,” he said. “And then also it looks like we’ll get corporate income tax cuts, so that means more profits to distribute to the shareholders so that’s good news for stock prices.”

Faucher says investors will be disappointed if Trump fails to introduce concrete proposals to boost growth, such as corporate income tax cuts or a major infrastructure jobs program, but he says, in general, the economic outlook is much better than it was just a few months ago.

Enthusiasm wanes

But enthusiasm surrounding Trump’s economic agenda may be waning.

Goldman Sachs says investor confidence may have reached its peak. And Kevin Kelly at Recon Capital Partners says markets may be close to reaching a tipping point.

“Now, it’s focusing on, OK, are we going to get deregulation or are we going to get taxes? Are things going to be weighing for a while? Is it going to be a second half of the year story? I think that’s what’s kind of seeping into the market right now.”

Some economists say Trump’s protectionist, anti-trade positions pose another risk to the larger global economy. 

Trump has turned his back on the 12-nation Trans-Pacific Partnership, and he wants to renegotiate the 1994 North American Free Trade Agreement (NAFTA) with Canada and Mexico. Critics of NAFTA say the North American trade deal destroyed millions of high-paying manufacturing jobs in the United States.

But Zandi of Moody’s says, “The United States is at the center of the global economy. It’s taken hundreds of millions of people out of poverty and brought them into the middle class. Think about Brazil, think about Eastern Europe, think about China and Asia. Consumers have also benefited enormously from cheaper goods. If we pull back on globalization, the world suffers and we will also suffer.”

Congress likely to back policies

Despite reports of disarray in the early days of the Trump administration, Zandi believes a Republican majority in both houses of Congress is likely to approve most of Trump’s policy proposals. 

But some economists wonder, given the Republican party’s brand of fiscal conservatism, if lawmakers approve Trumps proposed tax cuts, how is the administration going to pay for a major infrastructure jobs program, or new border agents, and of course, that giant border wall between the U.S. and Mexico?

From: MeNeedIt

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