The future of economic expansion: how long, how strong?
Though not a stock analyst, when I read about the expansion running out of steam I suppose I should get nervous, but I don't--watchful and wary, maybe, but not nervous. As a retiree my investments are our primary nest egg so if they diminish in value it will hurt. The question then would become, how long before those values recover? The three major indicators I consider in assessing future prospects are interest rates, the impact of tax cuts, and the effects of foreign trade and tariff policies of the U.S. government.
1. Stock markets hate uncertainty, especially about over-arching factors such as interest rates. In that vein the Federal Reserve has made clear it intends to continue measured increases in the short term (Fed funds) rate. Their goal is to keep inflation in check as expansion occurs. No uncertainty here.
2. Tax cuts are stimulating spending and sustaining consumer and business confidence, all of which tend to extend economic expansions. We've put off well into the future the day of reckoning, when Federal deficits will become as threatening to the global economy as an angry 800 pound gorilla would be to you or me. No significant uncertainty here either.
3. Shifts in foreign trade and tariff policies by the Trump Administration currently are the greatest sources of uncertainty for continued economic expansion. Higher tariffs tend to raise domestic prices, on goods that are imported, both directly (as taxes applied to imports) and indirectly, where they may lead to higher prices (by discouraging supply relative to demand of selected imports). In response, the Federal Reserve might decide to accelerate the pace of interest rate increases. Major uncertainty here.
Readers might want to read a recent Time magazine story about Peter Navaro, effectively the chief architect of the Administration's disruptive foreign trade and tariff policies, especially with respect to China. From the personal experience of being Navaro's next door neighbor for several years I agree with every negative thing the article says about him. He is the reason why foreign trade and tariff policies are the greatest threat to the continuation of America's economic expansion.
1. Stock markets hate uncertainty, especially about over-arching factors such as interest rates. In that vein the Federal Reserve has made clear it intends to continue measured increases in the short term (Fed funds) rate. Their goal is to keep inflation in check as expansion occurs. No uncertainty here.
2. Tax cuts are stimulating spending and sustaining consumer and business confidence, all of which tend to extend economic expansions. We've put off well into the future the day of reckoning, when Federal deficits will become as threatening to the global economy as an angry 800 pound gorilla would be to you or me. No significant uncertainty here either.
3. Shifts in foreign trade and tariff policies by the Trump Administration currently are the greatest sources of uncertainty for continued economic expansion. Higher tariffs tend to raise domestic prices, on goods that are imported, both directly (as taxes applied to imports) and indirectly, where they may lead to higher prices (by discouraging supply relative to demand of selected imports). In response, the Federal Reserve might decide to accelerate the pace of interest rate increases. Major uncertainty here.
Readers might want to read a recent Time magazine story about Peter Navaro, effectively the chief architect of the Administration's disruptive foreign trade and tariff policies, especially with respect to China. From the personal experience of being Navaro's next door neighbor for several years I agree with every negative thing the article says about him. He is the reason why foreign trade and tariff policies are the greatest threat to the continuation of America's economic expansion.
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