NEW YORK – Now that
US President Donald Trump has been in office for six months, we can more
confidently assess the prospects for the US economy and economic
policymaking under his administration. And, like Trump’s presidency more
generally, paradoxes abound.
The main puzzle is
the disconnect between the performance of financial markets and the
real. While stock markets continue to reach new highs, the US economy
grew at an average rate of just 2% in the first half of 2017 – slower
growth than under President Barack Obama – and is not expected to
perform much better for the rest of the year.
Stock-market
investors continue to hold out hope that Trump can push through policies
to stimulate growth and increase corporate profits. Moreover, sluggish
wage growth implies that inflation is not reaching the US Federal
Reserve’s target rate, which means that the Fed will have to normalize
interest rates more slowly than expected.
Lower long-term
interest rates and a weaker dollar are good news for US stock markets,
and Trump’s pro-business agenda is still good for individual stocks in
principle, even if the air has been let out of the so-called Trump reflation trade.
And there is now less reason to worry that a massive fiscal-stimulus
program will push up the dollar and force the Fed to raise rates. In
view of the Trump administration’s political ineffectiveness, it is safe
to assume that if there is any stimulus at all, it will be smaller than
expected.
Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
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