Stocks, the dollar and interest rates soared after the surprising election of Donald Trump on the assumption of a major shift in fiscal policy. Now that immigration and trade issues have moved to the fore, the markets are less certain as to the magnitude and timing of the fiscal changes. In its first quarterly report for 2017, the UCLA Anderson Forecast will discuss the implication of these cross currents and present a second pass at Trumponomics.
Key questions addressed at this quarter’s conference include:
- Can Trump deliver on his proposed tax cuts?
- How much will immigration and trade restrictions weigh on the economy?
- How many times will the Fed raise interest rates this year?
The national forecast
In his outlook for the national economy, UCLA Anderson Forecast Senior Economist David Shulman wrote that some of his current expectations are similar to those of last quarter, including the approximately $500 billion a year in personal and business tax reductions, a repatriation holiday for accumulated foreign earnings, increased defense and infrastructure spending, Medicaid cuts, relaxed regulations, modest changes to trade and immigration policies, and reductions in food and aircraft exports, as several trading partners react to the policy changes. The impact of a large tax cut on an economy at or very close to full employment will likely result in a short-term growth spike, but will quickly fade. The forecast calls for real GDP growth of 2.4 percent, 3 percent and 2.2 percent in 2017, 2018 and 2019, respectively, noting that real growth trails off on a quarterly basis in 2019, as higher interest rates weigh on the economy.
Though job growth appears robust with 170,000 jobs a month expected in 2017 and 2018, the figures will trail off to about 110,000 a month in 2019 and become even slower if the administration embarks on a large-scale deportation program of unauthorized immigrants. Concurrently, the unemployment rate could bottom out at 4.1 percent in late 2018, before gradually rising.