What’s Up with the Economy?
There are lots of conflicting signals. There is an inverted bond curve that has accurately predicted most past recessions. Yet US job growth was very high for June. The economy has been growing for the past ten years, and the US economic growth rates, fostered by Obama and boosted by the Trump tax cuts, continue to be quite strong. We are overdue for a recession. Many Americans have not yet recovered from their economic losses during the Great Recession, and economic inequality is continually worsening. Farm incomes are down quite a lot in the Midwest due to Trump’s trade wars.
We are in an unresolved trade war with China and teetering near the brink of a shooting war with Iran. Both are inflationary -- as Chinese goods cost American consumers more due to tariffs, and world oil prices may rise due to Persian Gulf hostilities and the uncertainty of oil deliveries; this would badly damage the global economy. The European and Chinese economies are already in slow down mode.
The President is pressuring the Federal Reserve quite heavily to cut interest rates to stimulate the US economy and improve his chances of being re-elected. It’s the only aspect of his Presidential performance which is in positive numbers with voters. This could also help head off a recession if one was imminent, but otherwise it would produce unwanted inflation and a weakening of the dollar.
If you combine an interest rate cut, with the high federal budget deficits from the Trump tax cuts, with tariffs on Chinese goods and uncertainty in the Persian Gulf, there is a danger of sparking debilitating inflation and global economic chaos. Chairman Powell and the Federal Reserve have a really difficult call to make.
Prepared by: Lucien Wulsin
CBO found that the Trump tax cuts gave a temporary economic boost with little to no impact in the trajectory of the US economy’s long-term growth rate of less than 2%. https://www.cbo.gov/publication/54918 and https://budget.house.gov/publications/report/cbo-confirms-gop-tax-law-contributes-darkening-fiscal-future