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Wait Until 2018 to See Growth Results From Trump Strategy

Wait Until 2018 to See Growth Results From Trump Strategy

 (Getty/Alex Wong)

By    |   Tuesday, 28 February 2017 11:08 AM

President Donald Trump will give his first address to a joint session of Congress and will do the same thing as President Barack Obama (2009 – 2017) did on February 24, 2009 after he was elected as president for the first time.

It’s a fact that newly elected presidents often deliver this type of speech instead of a formal State of the Union address, as it gives them a full year instead of a few weeks to fully assess the state of the economy.

What President Trump will say will of course impact financial markets and a lot will depend on what concrete proposals Trump will offer in the areas of tax policy reform, infrastructure spending, trade policy and squaring the budget.

With Monday’s announcement of a significant and even historical increase in U.S. military spending of about $54 billion (which is not, of course, the same thing as an actual increase in military spending because there is still what we could call that small matter of Congressional approval), it looks like Trump could be bound for reviving big government.

Now, to announce this with no concurrent announcement on how this really will be funded is certainly suggestive of an increase of the U.S. budget deficit and of an increase of the role of the U.S. government in the economy overall.

Trump's speech to Congress may hopefully enlighten investors as to how big a role deficit finance will play in Trump’s expansion plans of the government.

Critical to this is whether there is any indication of an intention to place a significant tax on the U.S. consumer in the form of some kind of trade protection tax. That trade policy as a policy option is clear from the administration’s desire to find ways around the World Trade Organization (WTO) rules on unilateral sanctions.

Whether this protectionist inclination becomes a broad-based consumer tax and whether any broad-based consumer tax revenue will be sufficient to offset the planned increase in military spending will be issues for investors.

The other thing to watch in Trump’s speech are of course the reactions of Congressional Republicans.

Many of Trump’s policies require Congressional approval and I’m afraid this is one area that is not in the main. Division over the style of government may become an obstacle to policies that investors have generally perceived as being positive so far.

Over in Europe, we got the release of preliminary consumer price inflation figures for France and Italy. 

France inflation came in at 1.2 percent year-on-year (y/y) and was well below the ECB’s near, but not at, but close to, but a bit below, but sort of around 2 percent inflation target. Italian consumer price inflation came in at 1.5 percent, which was somewhat better than expected but still below the ECB’s 2 percent inflation target. In France, 4th-quarter GDP came in at 1.1 percent y/y, which was a little bit better than in the 3rd quarter. From a political standpoint, that has little bearing as a political weapon, given that none of the front-runners in the French Presidential election race are at present in the government. 

Meanwhile, the U.S. economy grew at an anemic 1.9 percent rate in the fourth quarter, unchanged from an initial estimate, although consumers performed better than first thought, the Associated Press reported.

The inflation pressures build as markets are trying to determine whether the Fed is going to try “any time soon” to get itself up to speed for policy tightening.

The growth numbers are not as relevant as the inflation numbers perhaps, as the structure of the U.S. economy is changing with the new administration and not overlooking that fact could be helpful for investors.

Growth in 2017 will largely be a legacy of the Obama-era policies. Most of the economic data this year will represent Obama-era policies.

Growth in 2018 will start to reflect the new structure of the economy that the Trump administration is building.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.


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Growth in 2018 will start to reflect the new structure of the economy that the Trump administration is building.
trump, economy, growth, obama
Tuesday, 28 February 2017 11:08 AM
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