UCLA Anderson Forecast’s first quarterly report in 2018 sees a definitive change in the nation’s economy, which is moving from one of sluggish growth and low inflation to one of accelerating growth and moderate inflation. At the same time, with President Trump’s announced plans to increase tariffs on steel and aluminum, things could get worse, as domestic costs rise and foreign producers retaliate. Amid the changes forecast for the national outlook, California, still leading the nation in job growth, is expected to continue to outperform the U.S.
The National Forecast
The sudden 10% decline in stock prices and the rise in long-term interest rates in early February signaled what economists label a “regime change,” as the economic environment shifts from one of sluggish growth and low inflation to one of accelerating growth and moderate inflation. Concurrently, monetary policy is transitioning from one of accommodation to one of normalization, with four federal funds rate hikes in 2018; while fiscal policy moves from a moderate deficit to one with trillion-dollar deficits on the horizon. The $300 billion budget compromise during a two-year period, combined with the recently enacted $1.5 trillion tax cuts during a 10-year period, highlighted the demise of the so-called deficit hawks. The budget compromise also called for a substantial increase in defense spending, which ratified the Forecast’s long-held belief that the era of tightening in that sector is over.