Trump hits the brakes

WHEN the Democrats regained control of the House of Representatives in November electing fiery Nancy Pelosi as speaker there was no shortage of predictions of turbulence for President Trump.

Most forecasts focused on hostile investigations of Trump’s tax affairs, others on articles of impeachment.

But no one really predicted a pitched battle between the House and the president over his 2016 election promise of a barrier along the Mexican border.

The standoff between the legislature and White House has now ‘shutdown’ parts of government for 29 days, which is the longest such interruption in the history of the US.

There are growing concerns underlined by the Federal Reserve’s regional network, reported in the so called Beige Book, that a political crisis could become an economic problem. Indeed, it could even slow the central bank’s drive to raise America’s interest to more normal levels.

The comparison between the deadlock in Parliament at present over Brexit and the standoff between Congress and the White House is a bit crude, because Brexit is forever and everyone expects the US shutdown to be resolved.

Nevertheless, the uncertainty created by the lay-off of 800,000 federal workers without pay is starting to seep through to business and consumer confidence. Neither Trump or Pelosi are weakening. The speaker has been grounded by Trump because she intended to use a US Air Force plane to visit US troops in Afghanistan.

Conservatives, who often regard bloated government as a bad thing, might normally regard the shutdown as inconsequential.

But it is starting to have an impact on output and jobs. The last 16-day shutdown, which affected the whole US public sector, knocked 0.3pc off GDP growth in 2013. This time around 40pc of federal staff have been involved but the shutdown has been twice as long. The White House’s top economic adviser Kevin Hassett suggests the impact could be as much as 0.1pc a week.

Of vital social importance is the closure of the Tax and Trade Bureau, which is holding up distribution of beer. The shutdown could be a bonanza for financial sharks as the Securities & Exchange Commission lacks the capacity to review all filings.

There is a build-up of queues at airports because of staff shortages at the Transport Security Administration (TSA) tasked with keeping the skies safe.

Emergency arrangements are being put in place for agricultural subsidy payments as farmers run out of money.

And suppliers of services to the federal government are going unpaid.

Reports from the Federal Reserve’s 12 districts say US businesses are becoming more uncertain about the future as they grapple with the government shutdown, trade disputes, borrowing costs and volatile stock markets.

In Philadelphia clients of the banks are reported to be ‘jittery’ and in New York retailers have reported ‘sluggish’ holiday sales. The nation’s largest airline Delta says the stop on government travel is costing $25m a month.

None of this is serious enough to do longterm harm to a muscular US economy in itself. But it is likely to make the Fed cautious about going ahead with the current plan of two further interest rate hikes from the current 2.25pc to 2.5pc range.

A presidency which began with an economic and market surge is increasingly captured by uncertainty.

Air sickness

CONFIDENCE in no-frills airline travel has received two jolts in three months from Ryanair, which has downgraded profits to less than £1bn in 2018.

This is a 25pc cut from the record profits of the previous year.

Michael O’Leary’s carrier is wealthy enough to take the strain, but other lowfare carriers such as Norwegian Air are feeling pressure. Flybe is being rescued by the Virgin led consortium and a number of other carriers have already closed down.

The loss of capacity should eventually boost pricing power and income for the surviving airlines. But passengers may find bargain fares disappearing.