As we’ve talked about plenty of times before, some of the main themes of the Trump administration so far have been uncertainty and unpredictability. Despite those challenges, economists participating in a new Reuters poll are willing to offer their predictions as to where our economy is headed. And if what the majority of them suggest comes true, the U.S. is looking at the longest economic expansion in more than 150 years.
For their poll, Reuters spoke with several economists between August 7th and the 10th. On a question about how long the United States economy would continue its expansion, 34 of 57 respondents said it would go on for at least two more years, with 13 of those predicting it could even top three years. Sam Bullard of Wells Fargo told the news agency, “Expansions don’t go on forever,” but added, “Steady, moderate growth looks like it could stay in place for a while.” For the record, Bullard was in the “two to three years” camp.
One of the elements suggested for the continued economic expansion is the administration’s promise of significant tax cuts — especially for businesses. Unfortunately there are fears that President Trump and Congressional Republicans may have forfeited any political leverage they had to make those cuts a reality following multiple bungled attempts to make good on their “repeal and replace Obamacare” campaign promise. As a result the economists polled predict quarterly growth between 2.1% and 2.5% for the coming year. That figure is slightly more pessimistic than last month when the floor was set at 2.2% quarterly.
If there’s one thing nearly all of the economists surveyed can agree on it’s that the Federal Reserve will likely announce steps toward reducing its balance sheet (which currently sits at over $4 trillion) next month. A whopping 94 of 100 respondents estimated as much, with five holdouts suggesting that the announcement would come in the last quarter of the year and one lone wolf economist predicting it to arrive in the new year. The majority of those polled also expect the Fed to raise rates from the current 1.25% to 1.50% in either October or December of this year. Ethan Harris of Bank of America Merrill Lynch summarized his views on both points saying, “They are very likely to announce their balance sheet shrinkage in September and see better-than-even odds they will even hike in December.” Notably the Fed is still falling short of their inflation goal, but 55 of 62 economists say they should start shrinking their balance sheet anyway.
At the end of day it seems that, while our economy will continue to expand for next two to three years, the level of growth will still fall below previously set targets. As a result what has already been a lengthy recovery period is poised to last even longer. Regardless of these lukewarm expectations, the Fed — with the apparent blessing of many of economists — appears set to continue pushing forward and maybe just maybe put the Great Recession behind it… eventually.
Also published on Medium.