Despite a roaring stock market and stronger consumer and business sentiment, and assuming Congress and President Trump pass tax reform legislation that includes about $150 billion in corporate and personal tax cuts annually, the overall effect of Trump’s policies on the U.S. economy over the next couple of years is expected to be small and insignificant, according to a new economic analysis released on Thursday.
“We don’t see very much of a Trump effect for the U.S. economy over the next two years,” said Gabriel Ehrlich, director of the Research Seminar in Quantitative Economics at the University of Michigan.
“But we expect the effects of economic growth to be modest,” Ehrlich said.
“The much-hyped tax reform being debated has the potential to reshape the nation’s tax code in a substantial way for the first time since 1986,” said Daniil Manaenkov, one of the report’s authors.
However, the Michigan model forecasts that the GOP tax cuts will expand the federal deficit.
“We believe that federal deficits are going up, but by how much?” Manaenkov said.
“The Trump administration has yet to leave a lasting mark on the fiscal landscape,” Manaenkov added.
The House passed its tax reform bill on Thursday without any Democratic votes and despite some Republican opposition.
The report’s findings dash the hopes of President Trump achieving 4 percent economic growth, a promise he made during the 2016 campaign. So far this year, the U.S. economy has averaged 2.4 percent growth, with University of Michigan economists projecting a rise to 2.2 this year, 2.5 percent in 2018, and then a slip to 2.1 percent in 2019.
The Hill added:
Other key economic aspects of the forecast include:
Jobs: The national economy will add 3.9 million jobs over the next two years — 2.1 million jobs in 2018 and 1.8 million in 2019.
Unemployment rate: The jobless rate will continue to fall to an average of 4.2 percent next year and 4.1 percent in 2019 from an average of 4.4 percent this year.
Inflation: Inflation is projected to reach 1.7 percent in 2018 and 2.1 percent in 2019.
Michigan economists expect the Federal Reserve to raise interest rates at the next meeting in December.
“The recent weakness in core inflation should worry the Federal Reserve,” said Aditi Thapar, another author of the report.
“The Fed has openly admitted that it does not completely understand what is driving the weakness in inflation, but appears resolved to ignore it for now and maintain the pace of rate tightening,” Thapar said.