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Morgan Stanley: Risk of Recession Falls to 25 Percent Under Trump

Morgan Stanley: Risk of Recession Falls to 25 Percent Under Trump
(Dollar Photo Club)

By    |   Friday, 12 May 2017 02:09 PM

Morgan Stanley predicts there is a 25 percent chance that a recession will occur over the coming year under President Donald Trump, down from 40 percent in a July 2006 prediction under Barack Obama.

 “A stronger global backdrop and the delayed promise of tax reform have lowered this assessment from 30% previously,” Ellen Zentner, a Morgan Stanley economist wrote in a note to clients, MarketWatch reported.

In July 2016, it had forecast a 40% chance of a recession.

The investment bank’s methodology incorporates “a blend of conditional and unconditional methods,” and indicates “a very low risk of recession beginning over the next six months.”

Morgan Stanley did flag some economic aspects worthy of investor caution.

“While difficult to measure in real time, an unemployment rate near its natural, longer-run rate suggests the economy is in the late phase of its business expansion, which naturally lends upward pressure to recession probabilities,” Morgan Stanley wrote.

“An upswing in investment on the back of stronger global growth and prospects for incremental regulatory ease have strengthened private domestic demand. Combined with promised, but delayed, tax reform, this has lessened the immediate risk of a boom-bust cycle and lends downward pressure to recession probabilities,” Morgan Stanley wrote.

 “One could argue that late in the cycle, the promise of tax reform is actually better than the delivery, lest the latter deliver disappointment,” the investment bank wrote.

For its part, the Federal Reserve recently downplayed weak first-quarter economic growth while emphasizing the strength of the labor market, in a sign it was still on track for two more rate rises this year.

In a bullish statement following the end of a recent two-day policy meeting, the central bank also said consumer spending continued to be solid, business investment had firmed and inflation has been "running close" to the Fed's target, Reuters reported.

"The committee views the slowing in growth during the first quarter as likely to be transitory," the Fed said in a unanimous statement. 

The labor market continued to strengthen even as growth in economic activity slowed and "the fundamentals underpinning the continued growth of consumption remained solid," policymakers added.

The central bank's affirmation that it was optimistic on economic growth and that its rate rise plans remained intact bolstered the dollar against the euro and yen and pushed Treasury yields slightly higher.

"They went out of their way to emphasize this is not something they see persisting and pretty much says to me that their two rate hikes are still on the table for the balance of the year," Heidi Learner, chief economist at Savills Studley, told Reuters.

Meanwhile, Morgan Stanley isn't alone is scaling back its gloomy economic forecast under Trump.

Fitch Ratings has apparently reversed its opinion of President Donald Trump’s effect on global economic stability.

Fitch, one of the three major ratings services, issued “a mostly glowing report” Tuesday about the state of domestic finances, CNBC.com explained.

In February, Fitch warned that Trump posed a danger to global economic stability.

“Fitch, in a far cry from its dire warnings in February, both reaffirmed the sterling AAA credit rating for the U.S. and raised its outlook for gross domestic product growth,” CNBC explained.

The ratings agency says the president's pro-growth agenda would push GDP more than expected. Fitch sees U.S. growth at a 2.3 percent rate in 2016 and 2.6 percent in 2018 — better than the 1.6 percent average GDP rate under President Barack Obama.

"The new administration's focus on deregulation and tax cuts has spurred higher business confidence and would be positive for growth if carried through," Fitch analyst Charles Seville and others said in a report for clients. "Tax cuts are unlikely to generate a lasting and substantial boost to growth, in Fitch's view," CNBC quoted Seville as saying.

However, Fitch did caution investors about trade, and again pointed out that U.S. public debt was reaching dangerous levels.

(Newsmax wires services contributed to this report).

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Morgan Stanley predicts there is a 25 percent chance that a recession will occur over the coming year under President Donald Trump, down from 40 percent in a July 2006 prediction under Barack Obama.
Morgan Stanley, Risk, Recession, Trump, Obama, Economy
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2017-09-12
Friday, 12 May 2017 02:09 PM
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