‘Trump is the ultimate Keynesian’
America’s booming economy is putting recession talk to bed
GF chief U.S. policy strategist Greg Valliere never believed the U.S. economy would enter a recession — there was simply too much spending in the pipeline to make him think otherwise.
Valliere may have been proven right this week after the U.S. posted 3.2 per cent GDP growth for the first quarter of 2019, crushing expectations of an approximately two per cent rise.
“I thought it was remarkable,” Valliere told the Financial Post this week, of the surprise GDP print. The red-hot economy, Valliere said, should all but demolish concerns of a recession, which is usually defined as two consecutive quarters of negative growth.
Prior to the unexpected boom, the U.S. economy had been facing multiple potential pitfalls. Global growth was slowing, the yield curve had inverted and the government shutdown was placing it under further duress. Meanwhile, a nasty trade war with China, illtimed hawkish comments from the U.S. Federal Reserve and the possibility that U.S. President Donald Trump might be impeached all weighed on the markets. Some economists were convinced a recession was likely in the next 12 months, but Valliere said he expected the economy would roll on.
What kept Valliere confident through months of uncertainty was that he was sure Trump would spend his way out of trouble.
“I’ve been banging the drum for several months that the U.S. economy will surprise to the upside primarily because of the extraordinary fiscal and monetary stimulus,” he said.
“I say only half facetiously that Trump is the ultimate Keynesian.”
The U.S. president flooded an already healthy economy with fiscal stimulus earlier in his term, primarily through his introduction of tax cuts. The spending has further powered the U.S. economy but is also expected to widen the country’s deficit to about US$1 trillion in 2019.
Trump has pushed for even more stimulus by attempting to pressure the Fed into lowering interest rates by a percentage point. In a tweet this week, Trump cited the example of China while arguing that if interest rates were cut, the U.S. economy would “go up like a rocket.”
Fed chair Jerome Powell did not give Trump his wish on Wednesday, holding the benchmark rate between 2.25 and 2.5 per cent due to a lack of inflation pressure and “no strong case” for a hike.
“I don’t think Powell is intimidated by Trump,” Valliere said. “I think he’s intimidated by the markets.”
Last year, Powell made a “rookie mistake,” Valliere said, by catching the markets off guard with comments suggesting he was looking to raise rates multiple times in 2019. Since then, Powell has corrected course by adopting a dovish tone, which helped convince investors to reinvest some of the cash they pulled out of markets and bring indices such as the S&P500 to all-time highs.