The U.S. economy has mostly met the central bank’s goals of full employment and stable prices, and may get further support if President Donald Trump delivers promised fiscal stimulus. Investor and business confidence has soared since Trump won the presidency in November, buoyed by his vows to cut taxes, lift infrastructure spending and ease regulations. Harvard economics Professor Robert Barro writes in the Wall Street Journal, “with reduced tax rates, regulatory reform, and infrastructure investment, economic growth could hit 3% to 4% a year for the next couple of years.”
Janet Yellen apparently also feels good about the economy. “The simple message is the economy’s doing well. We have confidence in the robustness of the economy and its resilience to shocks,” our Federal Reserve Board chairperson said at a News conference in Washington on March 15th. This confidence in our economy is apparently contagious. The small business optimism index measured 105.3 in February. This is up from 94.9 in October in 2016.
According to the National Federation of Independent Businesses this is the highest reading in 43 years! Consumers are also feeling good. The US Conference Board Consumer Confidence Index improved in March 2017 to 125.6 from 116.1 in February. The current confidence level is the highest since December 2008 according to the conference board! The biggest rise in confidence is for income levels from 50-75K. That group’s confidence has increased from 100.4 before the presidential election to a recent mark of 135.2.
Even without policy changes it is likely that the consumer confidence and small business confidence levels will become a self-fulfilling prophecy. After all, the more confident consumers are, the more likely it is they will spend and invest in the future. The more confident small business owners are more, the more likely they will be to hire employees who then have money to spend in the economy. The increased economic activity should lead to greater confidence and so on.
So what could go wrong?
Not all of President Trump’s policies are business friendly. The President may push for restrictions on trade and immigration. These are negatives for economic growth. Additionally, there is also always a chance that the investigation into Russia could leave our current administration badly weakened. A scandal plagued presidency would surely erode confidence levels and hurt economic growth. Risks and opportunities are fairly balanced today. After all, that’s what makes a market.
In the meantime, the Fed is confident, consumers are confident, small businesses are confident and we are a bit more cautiously optimistic.
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