Washington Paralysis Log Jams Economic Growth

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The U.S. has more than recovered the output level lost in the Great Recession and has reached new highs. Expansions historically last about five years.

Paralysis may be too big a word for the progression of policy in Washington, but outside of deregulation things are grinding slowly if at all there. While the House passed the ACHA, the outlook for further progress in the Senate is quite cloudy. Tax reform – a difficult process in the best of times – looks increasingly like a 2018 story. Trump’s team is not fully staffed, making further economic progress both domestically and internationally problematic.
Understandably, the market remains in a ‘show me’ state over the outlook. At this point, the consensus is for a 2.1% GDP growth rate in 2017 followed by 2.4% in 2018. That’s strong enough for the Fed to slowly keep reducing the amount of accommodation, though still leaving monetary policy accommodative. It’s strong enough to keep the unemployment rate moving lower. However, in order to break the moderate growth log-jam, this will require progress not only on deregulation but also the promised tax reform of lower rates/wider base. Deregulation is a positive, and removing the threat of further regulation is a plus. But major Congressional-dependent policy changes appear to be on the slow track, and it is those policies that are the game changers to break from the sluggish growth of the past 15 years.
Having said that, expectations remain extremely positive in April. The University of Michigan Consumer Sentiment Index is at 98, up from 87 before the election. The NFIB Small Business Optimism Index remains around 105, up from 94 in 2016. Better animal spirits are important, but they must be validated by results. Please follow GDP on page 69 of the Global Perspectives™ Book.- Special Guest Blogger: Tim Kearney

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