ALONG FOR THE RIDE,

Get ready. There is a different jockey, there will be a different ride and America voted for change.

That, in a nutshell, is what Joe Carson, director of global economic research at New York-based money manager Alliance Bernstein, argues as Donald Trump, with his probusiness agenda, prepares to assume control in the U.S. “The president can try and create a tax and regulatory structure that favours business (in the U.S) and helps workers,” said Carson, visiting Canada this week presenting his firm’s economic forecast. “He has changed the tone.”

In Carson’s view, Trump’s plan — assuming it’s implemented along the lines as advertised — will result in higher economic growth, higher government spending (particularly on infrastructure and defence), higher inflation (in part because of higher commodity prices and wages) and a stronger U.S. dollar — and ultimately higher interest rates.

Prior to the election, Carson had forecast, for 2017, a 2.9-per-cent gain in GDP; a 2.8-per-cent gain in consumer prices; a 4.5-per-cent unemployment rate and a Fed funds rate of 1.125 per cent. Now the comparable numbers are 3.1 per cent; 2.9 per cent; 4.4 per cent and 1.375 per cent.

For 2018, when the full effect of the tax, regulatory, and spending measures are felt, GDP is expected to be ahead by 3.8 per cent, the CPI by 3.4 per cent, the unemployment rate to fall to four per cent and the Fed funds rate to rise to three per cent.

Those consequences will flow, Carson said, because the U.S. has never embarked on a major spending spree at the same time as interest rates, inflation and unemployment rate were so low. But Trump’s goal is to “strengthen the economic cycle. He has to put in place a plan that has longevity.”

It may not be clear sailing. Carson, whose firm has almost US$500 billion of assets under management, noted two potential negatives.

First, the extent to which monetary policy (which has been very accommodative for the past eight years) changes its stance. Carson noted the Federal Reserve is “at risk” of falling far behind the growth and inflation cycles, and a series of rate hikes is expected for 2017 and 2018. Over the next 12 months he expects the yield on 10-year Treasury bonds will hit 3.5 per cent. It’s now at 2.36 per cent.

Second, the extent to which Trump decides to start a trade war. “Trump has to understand that trade is an important part of the U.S. economy (exports are about 12.5 per cent of GDP, way lower than the 31.5 per cent for Canada) and that many businesses operate with a global platform. And I am sure that he is learning that more and more,” said Carson, who noted that the incoming president will likely assess the effects of planned tax and regulatory changes “before doing something on trade.”

On the matter of renegotiating NAFTA, a Trump campaign promise, Carson said some work will be done on that issue by the incoming president. In his presentation, Carson noted Canada could benefit from such a review given that it has lost market share, to Mexico particularly, in auto production.

Carson noted that other countries will be assessing the effects of Trump’s plan: to the extent that it works (and by his estimate fiscal policy has been a drag on the U.S. economy for years) then they could be expected to follow suit. In his view, austerity, particularly as practised in Europe, hasn’t worked. “Europe has to change,” he said.