By Howard Schneider
WASHINGTON (Reuters) – From trade wars to tax cuts, from ultra-low unemployment to record highs in stock markets and a large volume of feuds with his own Federal Reserve chief, President Donald Trump has taken the US economy on a wild ride even before the coronavirus expel it from a cliff.
How to sum it up?
The answer from February 2020 will be different from the answer today. A year ago, the US economy seemed to have established a sweet spot of steady growth, low unemployment, low inflation and ultimately rising wages. Trump may have hated the Fed, but eventually the Republican president and the US Federal Reserve reached a ceasefire that allowed a decade of growth to continue and pushed the unemployment rate to a 50-year low.
The pandemic has changed all that and is likely to leave deep economic scars. This is what stands out:
The Trump years: labor market https://graphics.reuters.com/USA-ECONOMY/TRUMP/dgkvlkwrlpb/chart.png
RELATIONSHIP TO SUBMISSION AND POPULATION
Wider than the unemployment rate, the statistics capture the number of people not only without work and watching, but also those who have left the workforce completely, a particular source of concern during the pandemic. It gradually improved and continued to do so under Trump – until March 2020.
“You see how it collapses with the shutdown of the virus and you see how it bounces back quickly and then stops,” said Austan Goolsbee, chairman of the Board of Economic Advisers under former President Barack Obama and a professor of economics at the Booth School of the University of Chicago, said. of Business. “It basically describes the trajectory of the economy. The biggest cause is obvious. The furious out-of-control of the virus, which is absolutely linked to horrific policy errors and oversight.”
The Trump years: interest rates https://graphics.reuters.com/USA-ECONOMY/TRUMP/xlbvgygaavq/chart.png
Federal funds rate
The story of the Trump years can also be seen in the Fed’s overnight interest rate, also known as the federal fund rate, which was raised because tax cuts and deficit spending led to higher than expected economic growth, declining during a trade war. began to hone global trade and reduced to almost zero when the pandemic struck.
Trump has complained strongly about the Fed’s rate hikes, and he may have had a point. The central bank has finally, for its own reasons, found its own low-rate religion that is less concerned about inflation and ‘overheating’, and is unlikely to raise rates again for long.
The Fed’s new policy strategy from August 2020 means that “they are implicitly looking back and considering the extent of rate hikes in 2017-2018 as a mistake,” said Jason Thomas, head of research at the Carlyle Group. “They fell prey to the models … What we’re seeing at the Fed now is an attempt not to fall into the same trap.”
The Trump Years: Trade Wars https://graphics.reuters.com/USA-ECONOMY/TRUMP/rlgpdglmzvo/chart.png
TRADE WAR
The seeds of ‘deglobalization’ may have been well planted before Trump’s 2016 election victory, and as the Brexit debate has shown, he was not the only politician to exploit sentiment.
But his willingness to use one-sided tariffs and fight not only with opponents like China but seemingly allies like Germany has toppled the world trade order. He still ended his term with a US trade deficit, inevitably, perhaps due to the pandemic. But some of his concerns have been shared by other countries, for example about China’s poor enforcement of intellectual property rules.
With not only trade but also climate change and other issues on the agenda for the world and President-elect Joe Biden, ‘a discussion that is more multilateral than bilateral can make more progress’, said Raghuram Rajan, former head of the Reserve Bank of India, said. and a professor of finance in the Booth. “Start again with the simple, ordinary pieces of vanilla … Difficult areas can be placed on a separate track … China should not feel that it is placed in a corner.”
The Trump years: shares https://graphics.reuters.com/USA-ECONOMY/TRUMP/jbyvrnrjdve/chart.png
THE STOCK MARKET
Trump treated the stock market like a scorecard for his presidency, and he noted new records in tweets and blamed the fall of the Fed, among other suspected crooks.
However, consider it a story in two chapters. Prior to the pandemic, Trump’s combination of corporate tax cuts and deregulation, coupled with continued economic growth, fueled profits and stock prices. After the pandemic, it is less clear why stocks were overpaid, but the Fed’s promise of low interest rates for many years to come and a flood of pandemic aid in the economy play a role.
“Trump was unusual in linking his policies and interpretations of his policies to ‘stock prices,'” said Randall Kroszner, a former Fed governor who is now a professor in the Booth and deputy dean. “Now people are worried about the Fed’s actions and the expected stimulus is driving markets to levels that cannot be sustained … but that tells you something about the progress of the US economy, tax changes, regulatory changes.”
The Trump years: government debt https://graphics.reuters.com/USA-ECONOMY/TRUMP/qzjpqmerzpx/chart.png
Was it ultimately the largest economy in the history of the United States?
As with many things about Trump, it depends on who is asked. It also depends on whether the frame of reference is related to short-term outcomes, or longer-term sustainability issues – such as the record level of government debt compiled to finance tax cuts and pandemic relief – or equity, or the quality of public goods such as the environment .
For Democrats, attitudes toward the economy have at least eased since Biden’s victory in the Nov. 3 election. For Republicans, sentiment has weakened.
Expectations fluctuated after both recent elections https://graphics.reuters.com/USA-ECONOMY/SENTIMENT/dgkplkxmxvb/chart.png
(Reported by Howard Schneider; edited by Dan Burns and Paul Simao)