Saturday, November 19, 2016

Goldman: "2017 Outlook: Under New Management"

by Bill McBride on 11/19/2016 03:25:00 PM

A few excerpts from analysis by Goldman Sachs economists Zach Pandl and Jan Hatzius: 2017 Outlook: Under New Management

The prospects for significant changes in policy under the new administration and an economy moving into the later stages of the business cycle implies high uncertainty, and an especially interesting US economic outlook this year. We think the odds of a recession over the next 1-2 years continue to look relatively low, and see signs of firming growth in recent data ...

Any fiscal stimulus from the next administration would be an added tailwind for 2017 growth, and we think meaningful tax and spending legislation is likely next year. However, we would caution that (1) the current fiscal backdrop may limit the scope for large deficit-financed tax cuts or spending increases, (2) aspects of the Trump agenda, such as trade restrictions, are less favorable for growth, and (3) the economy is already operating close to full employment, which limits the possible upside to growth without generating higher inflation.
For most of the last eight years, policymakers have been solely focused on shoring up the recovery; today they also must consider the risk of overdoing it. Given above-trend growth, and with the prospect of fiscal stimulus, we see the US economy moving into modest disequilibrium over the next 1-2 years, with an unemployment rate falling below its long-run sustainable rate, and inflation rising above the Fed’s target.
emphasis added
CR Note: I have more thoughts on policy soon.