It's a 'Sticky' Situation for Economy, Trump
By Tim Triplett
on Dec 19, 2016
We may have a new president, but we have the same political structure we’ve had for 240 years. Don’t expect any radical changes any time soon, predicts economist Chris Kuehl of Armada Corporate Intelligence, who addressed members of the Association of Steel Distributors last month in Las Vegas. “We have a pretty sticky system,” Kuehl said. “It’s relatively difficult for any one person or any one party to make changes very fast.”
Kuehl expects five factors to dominate the nation’s economic and political agenda in 2017:
- Interest rates—The Fed is poised to raise rates next month, and may well hike rates an additional point or two by the end of next year, depending on how well the economy fares.
- Inflation—Inflation remains well below the Fed’s target core rate of 2 percent, but wages are trending up, which should lead to higher prices next year. “We are not going to see rampant inflation, but it should be enough for the Fed to be a bit more confident about raising rates,” Kuehl said.
- The strong dollar—The U.S. dollar could strengthen even further as it attracts global investment. Most other countries will strive to keep the value of their currencies low, which gives their exports a cost advantage. China’s currency has strengthened in relation to the dollar as its wages have risen and it seeks to nurture a more consumer-driven economy, one less dependent on exports.
- Government gridlock—Even on initiatives both parties support, such as infrastructure investment, the path to success is unclear. There is no unanimity on how to pay for it. It’s unrealistic to borrow enough, or cut enough, to pay for a trillion-dollar highway bill. The new administration is hoping to entice the private sector to invest, perhaps with tax breaks on funds repatriated from overseas. But private investors will expect returns, which could mean more toll roads and bridges and higher fees at airports and seaports.
- Tax reform—The U.S. has one of the highest corporate tax rates in the world, but reaching a consensus on how to reform the tax code to encourage business investment is no easy task “For a tax break to stimulate the economy, you have to give it to the people who spend money,” Kuehl noted. “But giving a tax break to wealthy people while we are in the grips of such right-wing and left-wing populism will be politically unpopular.”
Kuehl predicts the U.S. economy will finish 2017 in better shape than it is right now, with Republicans in control of Congress and the White House, but the debate along the way could be just as acrimonious. “There are a lot of Republicans that don’t like Trump. The Republican party is more like four or five different parties masked as one.”