Sunday, November 13, 2016

Goldman: "Economic Implications of the Trump Agenda"

by Bill McBride on 11/13/2016 10:19:00 AM

A few excerpts from an analysis piece by Goldman Sachs economists Sven Jari Stehn and Alec Phillips:

• President-elect Trump’s proposals, if enacted, would have significant implications for the US economic outlook over the next few years, some positive and some negative. The positive fiscal impulse from his tax reform and infrastructure proposals could provide a near-term boost to growth and, depending on the specifics, could have positive longer-run supply side effects.

• However, other proposals could lead to new restrictions on foreign trade and immigration, which could have negative implications for growth, particularly over the longer term. ...

• We expect scaled-down versions of the tax reform and infrastructure policies to be enacted. We do not anticipate significant changes on immigration policy, but incremental restrictions seem likely. Mr. Trump’s monetary policy views are still unclear, but slightly more hawkish appointments appear likely at this stage. Trade policy is the greatest unknown, but we expect that Mr. Trump would follow through on at least some of the trade policies he has outlined.

• Keeping in mind that our simulations are subject to considerable uncertainty, we draw three main conclusions. First, Mr. Trump’s policies could boost growth in 2017 and 2018, but are likely to weigh on growth thereafter if trade and immigration restrictions are enacted, or if Fed policy turns more restrictive. Second, core inflation and the funds rate are likely to be higher for the next few years in almost all scenarios. Third, the risks around our base case appear asymmetric: a larger fiscal package could boost growth moderately more in the near term, but a more adverse policy mix would likely lead to a significant slowdown, higher inflation and tighter policy in subsequent years.
emphasis added
CR Note: No one knows exactly what Mr. Trump will propose. As an example, Trump has promised his supporters that he would not touch Social Security and Medicare, but House Speaker Paul Ryan has already suggested that cuts to Medicare are on the table. And note that Goldman does not "anticipate significant changes on immigration policy", yet that was Trump's initial campaign proposal. We have to wait and see what the exact proposals will be.