After this week’s upbeat Federal Reserve Minutes Report, you would think that the economy was going from strength to strength, completely ignoring the fact that we are perilously close to the end of the his business cycle. What’s more, the overly optimistic outlook also seems to overlook the recent correction in the stock market (down 10% in 2 months), a stagnating retails sector, and declining new homes sales.
More than anything, the Fed is referring to economic conditions based on 2017 economic performance. Since the beginning of this year, any hopes of accelerated growth resulting from the Tax Cuts and Jobs Act have been doused by the ramping up of trade war. In March we have already seen mounting volatility in the markets resulting from an increasingly protectionist message emanating from the White House. Some early studies on the macroeconomic impact of a global trade war on economic performance have signaled that it could shave as much as 1 to 1.3 percent of GDP.
All in all, the institutions of the economic establishment continue to have a rosy outlook for the U.S. economy for 2018 and 2019, however, I don’t think we should expect 3+ percent growth rates any time soon. Since estimating GDP growth for Q1 2018 in February at 5.4 percent, the Atlanta Federal Reserve Bank has since lowered its projections week after week, to its current projection of 1.8 percent. I think that a figure close to this is most likely what we will see for 2018 YoY.
Here is my prediction for 2018 GDP Growth compared with the projections of well-distinguished economic institutions:
