S&P expects only moderate tax cuts will be passed early next year

Campaign promises won't impact government policy

[Update 1: A deeper review of this article's content, after considering letters to the editor and reader comments below, HousingWire believes more balance is needed (and since added) and so the original headline "Economic markets lose faith in President Trump" is no longer reflective and modified accordingly on July 5th.]

During his campaign, President Donald Trump set a target of 3% economic growth for this country, but will growth in the first quarter help contribute notably toward that goal?

The third and final estimate of real gross domestic product came in at a mere 1.4% for the first quarter of 2017, according to the U.S. Bureau of Economic Analysis. The first quarter numbers reflect the only 72 days of the current adminstration, however according to an article by S&P Global [paywall], there is not a large expectation the President may chose to greatly modify government policies in order to reach that goal.

“Relying on the long-standing truth that campaign promises aren't, and often never become, government policy, we largely discounted last autumn's rhetoric in our December forecast for U.S. economic growth,” said Beth Bovino, S&P Global U.S. chief economist. “Now, we no longer believe the federal government will be able to push through even a small infrastructure-spending package, and we expect only moderate tax cuts to be passed early next year as midterm elections approach.”

Tax cuts were once offered by President Trump as a potential option to help stimulate the economy, if necessary. In April, the administration promised sizable tax cuts for all, though not everyone in the White House are said to agree.

While forecasts show the economy will continue to expand, it will occur at a much more moderate pace than previously expected as GDP increases to 2.2% for 2017 and 2.3% in 2018, Bovino said. However, the stock market rally continues, with June showing strong gains.

But there remains some trepidations, as Americans are becoming less optimistic in the future of the economy, according to the latest Index of Consumer Sentiment report from the University of Michigan.

As for the government, there is more confidence in the economy. S&P Global estimates in September the Federal Reserve will announce plans to gradually normalize its balance sheet, and says 2017 will see one more rate hike. The company forecasts the Fed will raise rates three times in 2018.

The general consensus is that the next rate hike will occur in December, though some experts are even beginning to doubt that, saying 2017 has seen the last of its increases to the federal funds rate.

On the positive side, inertia in Washington means the risks of a policy mistake have eased. S&P Global predicts the chance of a recession slipped to 15% from 20%.

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