Trump's off-course policies pose greatest risk to US economy: The Yomiuri Shimbun

A woman walks her dog in front of the Manhattan skyline on a warm day in Brooklyn Bridge Park in Brooklyn, New York City, on Aug 13, 2017.
A woman walks her dog in front of the Manhattan skyline on a warm day in Brooklyn Bridge Park in Brooklyn, New York City, on Aug 13, 2017. PHOTO: REUTERS

In its editorial on Aug 15, the paper says Washington needs to follow prudent monetary policy with US business now in its ninth year of expansion.

TOKYO (THE YOMIURI SHIMBUN/ASIA NEWS NETWORK) - The US economy, the expansion of which has continued over a long period, now faces a crucial phase. To maintain the current momentum, prudent monetary policy and restoration of government management are indispensable.

US business expansion has entered its ninth year, already marking the third-longest period of growth since the end of World War II.

US stock prices have been hovering within the range of record-high levels. The country's jobless rate improved to 4.3 per cent in July, the level the Federal Reserve Board assesses as almost full employment.

After the financial crisis in the aftermath of the collapse of Lehman Brothers in 2008, the Fed tried to halt deflation aggressively by adopting a de facto zero interest rate policy and pushing for quantitative monetary easing on three occasions.

Given the economic recovery, the Fed switched to raising interest rates at the end of 2015. The Fed is pushing forward its strategy to exit from monetary easing by raising interest rates on four occasions until June of this year.

From September onward, the Fed plans to shrink its holdings of US Treasury bonds and other portfolios it purchased in huge quantities for the purpose of quantitative easing.

It is understandable that the Fed aims to forestall business overheating through gradual monetary tightening and secure room to lower rates in preparation for any subsequent recession.

However, excessive monetary tightening might put a damper on business activities. The Fed bears a heavy responsibility to prevent the US economy, which accounts for 25 per cent of the world economy, from becoming dysfunctional.

A worrying matter in assessing future business prospects is that the increase in prices is less pronounced when compared with the improvement in the employment situation. Another aspect is the lack of vitality in personal consumption.

US new car sales in July registered a year-on-year decline for the seventh straight month. The outlook for future car sales is a matter of concern, as auto loan defaults have started to become problematic.

In its outlook for the global economy revised in July, the International Monetary Fund revised downward the US growth rate for this year and next year.

The primary factor behind the downward revision is the stagnation in U.S. economic policy caused by President Donald Trump's poor, clumsy handling of the administration.

Prospects have yet to be ascertained for realisation of the proposed large-scale tax reform that calls for lowering the corporate tax rate from 35 per cent to 15 per cent and for infrastructure expansion projects involving a total amount of US$1 trillion (S$1.36 trillion) over 10 years.

Trump repeatedly jumped the gun in implementing his policy initiatives without sufficient advance coordination with Congress, thus aggravating the relationship between them. A typical example of this is that the bill to repeal some measures of the so-called Obamacare health insurance system, to which Trump gave top priority, was voted down due to opposition from Republican lawmakers.

Unless Congress raises the federal debt ceiling by autumn at the latest, dysfunction in some federal government institutions will become a realistic possibility. It is also difficult to predict how congressional debate will evolve over budget plans for the new fiscal year, starting in October.

The Trump administration straying off course is the biggest risk to the US economy. First and foremost, his government must tackle the job of solidfying its footing through such efforts as filling in conspicuously vacant high-ranking government posts.

The Yomiuri Shimbun is a member of The Straits Times media partner Asia News Network, an alliance of 23 media entities.