WASHINGTON (NYTIMES) - President Donald Trump is getting exactly what he wants on the economy, but it may not last.
The Federal Reserve has abruptly stopped its march toward higher interest rates, as Trump demanded. The tax cuts he signed in late 2017 are in full swing. His attempt to rewrite the global rules of trade are underway, and he proclaims himself happy with the array of new tariffs he has imposed. His recent comments suggest he is unconcerned about slowdowns in China and Europe, which he considers economic rivals.
But while Trump points with pride to last year's economic growth and promises even faster growth to come, there are signs that his most dependable talking point is eroding. On Thursday (March 28), the Commerce Department issued a downward revision of its estimates for economic growth in the fourth quarter, pushing one measure of the full year's growth down as well.
Forecasters outside the White House, including officials at the Fed, expect growth to slow even more this year. Economic data suggests that slowdown is already underway in the first quarter. Manufacturing is losing some of its steam from last year's rapid growth, and job creation is also moderating. Chief executives of some of the nation's biggest companies see investment, hiring and sales growth all slowing this year. Three-quarters of business economists say they are more worried about growth undershooting their forecasts than overshooting it, and half have revised those forecasts downward for this year.
White House officials see growth staying above 3 per cent for the next few years - and potentially for an entire decade, provided Trump can continue carrying out his economic agenda, including another round of tax cuts, a US$1 trillion (S$1.35 trillion) infrastructure plan and additional deregulation.
"The economy is roaring," Trump said on Thursday night at a rally in Grand Rapids, Michigan. "Our country has never done better economically."
Trump's re-election could hinge on whether he is right about the economy, and nearly every other forecaster is wrong. If Trump is correct and growth surges again, he will enter 2020 with arguably the strongest economic record of any incumbent president facing re-election since Bill Clinton in 1996. But if he is wrong and the economy cools, Trump will have no one to credibly blame - and few places to turn for another jolt of stimulus if the United States slides into an economic contraction or recession.
The Democrats who control the House have no desire to pass another round of tax cuts. The Fed, which has slowly raised rates to a range of 2.25 to 2.5 per cent, has relatively few tools available to help lift the economy from a sharp downturn. Some Fed officials have begun to warn that they might need to cut interest rates later this year - further reducing the Fed's ammunition to fight a recession - if growth disappoints.
"At the moment, the risks from the downside scenarios loom larger than those from the upside ones," Charles Evans, the president of the Chicago Fed, said on Monday in Hong Kong. "If activity softens more than expected or if inflation and inflation expectations run too low, then policy may have to be left on hold - or perhaps even loosened."
Last week, Trump again raised his bet on his ability to fuel a continuing boom in growth. He said he would nominate Stephen Moore, an architect of his campaign economic platform and a fellow critic of the Fed's recent interest rate increases, to a seat on the Fed's board of governors. If confirmed, Moore would become the first unabashed Trump loyalist on the board, and he would press officials to reduce rates in hopes of pushing annual growth to 4 per cent.
On Thursday, the Commerce Department said the economy slowed more sharply at the end of last year than previously reported, revising its estimate of fourth-quarter growth to 2.2 per cent from 2.6 per cent because of weaker spending by consumers and state and local governments, among other factors.
Growth for the full year - as measured from the fourth quarter of 2017 to the fourth quarter of 2018 - stands at 3.0 per cent, down a bit from the initially reported 3.1 per cent but still enough to allow Trump to claim to have achieved the first year of 3 per cent growth since 2005. (That claim is somewhat misleading. Year-over-year growth has topped 3 per cent several times in recent years, but not in the fourth quarter. An alternative measure of full-year growth for 2018, based on comparing calendar-year averages, was unrevised at 2.9 per cent.)
While Trump continues to predict robust growth, he is already trying to pin blame for any slowdown on the Fed, rather than any of his own policies.
"We're doing a good job," he said in an interview last week on Fox Business Network. "And I think we have tremendous momentum right now. And you're right, the world is slowing, but we're not slowing." He added that, "if we didn't have somebody that would raise interest rates and do quantitative tightening," we would have been at over 4 per cent growth.
Fifty-six per cent of Americans approve of Trump's handling of the economy, Gallup reports, the highest mark of his term and the best for a president since Barack Obama registered the same rating in March 2009. Surveys of consumer confidence remain strong, including a confidence index conducted for The New York Times by online research firm SurveyMonkey, which has gained strength since Trump took office.
Unemployment has dipped to 3.8 per cent. Inflation remains subdued, and wage growth is accelerating.
White House economists say the tax cuts Trump signed in 2017, for businesses and individuals, deserve much of the credit for the economy's performance - and that they will deliver another strong year of investment and hiring in 2019.
"Some folks have said that, 'Oh, sure, we did have 3 per cent growth, but that was a sugar high,'" Kevin Hassett, chairman of the White House Council of Economic Advisers, said last week.
"And our view is that it's really not a sugar high at all," he continued. "A sugar high would be: We spent a lot of money on Twinkies and now we are sorry we ate all those Twinkies, and we don't have money left. But this is - we actually cut taxes to encourage people to build new factories. And we had new factories last year. We're going to get more new factories this year, but we're also going to get the output from the factories we built last year as they turn them on."
Outside economists are more pessimistic, citing drags on growth from Trump's trade policies, slowdowns abroad and a fading consumer spending boost from the tax cuts. Fed officials said this week that their median prediction is now for 2.1 per cent growth for the year. Their projections also foresee no interest rate increases in 2019 - down from a forecast of two in December and in line with Trump's desire to halt rate increases - and officials announced they would end the reduction of their asset purchase program sooner than markets had expected.
"I don't believe there's a lot of room for criticism if you believe the Fed should be easy this year - they are," said Ellen Zentner, chief US economist at Morgan Stanley. "The Fed has completely removed themselves from the equation, both in their rates path and their balance sheet."
Zentner forecasts 1.7 per cent growth this year, largely as a result of slowing investment growth. That would mark a return to the Obama-era growth levels that Trump has said are now over.
Trump could possibly influence the growth path on his own this year, positively or negatively. He could reach a trade agreement with China, bolstering business certainty and removing tariffs that have hurt US companies and consumers. He could also end tariffs on imported steel and aluminum, which have raised prices for companies that use foreign metals in their products.
But Trump has also threatened to impose new tariffs on imported automobiles and auto parts from Europe and Japan, a move that economists, companies and lawmakers from both parties warn would be economically devastating to the auto industry and its customers.
He has negotiated a new trade agreement with Canada and Mexico, but he needs Congress to approve it. Its fate is uncertain. He does not appear to be aggressively pushing for Congress to pass a large-scale infrastructure plan, though he has called for one, and a divided Congress is unlikely to approve one even if he did.
A question mark could be government spending. Last year, Trump signed an agreement between Republicans and Democrats that increased defence and other domestic spending, which helped stimulate demand and growth in the economy. In his budget this year, Trump called for additional defence increases but cuts in domestic spending, which Democrats are certain to oppose.
Complicating the conversation is the widening federal budget deficit, which hit a monthly record in February, according to the Treasury Department, and which the Trump administration predicts will soon top US$1 trillion a year. The deficit has ballooned, even in a time of relatively rapid growth, because Trump's tax cuts reduced tax revenues - both in absolute terms and compared with forecasts - and because of the spending increases he approved.
It is unusual, historically, for presidents to pour fiscal stimulus onto an economy with already low unemployment. The decision to do so could tie Trump's hands in a dire situation that most economists deem possible but unlikely - an economic contraction or recession this year.
Democrats will be in no mood to give Trump another tax cut, in that case. The Fed could cut rates, but not by as much as it did in previous recessions. To combat each of the last three recessions, the Fed cut rates by at least 5 percentage points.
Today, the Fed's target interest rate sits between 2.25 and 2.5 percent. It does not appear to be rising anytime soon.
That's just how Trump wants it.