Two top economists doubt Trump’s policies will spur growth

Gordon, Eichengreen argue fiscal stimulus will lead to higher interest rates, stronger dollar

Jan.January 16, 2017 05:30 PM

Financial markets — and some real estate executives — have been cheering the potential for stronger economic growth under a Trump administration, but two leading economists have their doubts it will come to that.

Robert Gordon, a professor at Northwestern University, argued that Trump’s TRData LogoTINY plans to boost public spending in an economy that is already near full employment will simply lead to higher inflation. This could in turn prompt the Federal Reserve to raise interest rates more quickly, putting the brakes on growth.

“I see a likelihood for a major clash developing in the next year, year and half, between the Trump administration’s desire to go for 3 to 4 percent growth and the growing attention of the Fed to emerging inflation in their own 2 percent mandate,” Gordon said. He added that this makes it unlikely Trump will reappoint Yellen when her term is up in 2018.

“The appreciation of the dollar that comes with the higher interest rates is going to cause an increase in the trade deficit and undermine his own desire to reduce the trade deficit. We’re going to have major impediments to Trump’s achieving his goals for growth,” he said.

Barry Eichengreen, a professor at the University of California at Berkeley, predicted that we could see “double-digit” growth in the dollar’s exchange rate as higher interest rates attract more capital from abroad.

“There’s the danger that markets and the global financial system aren’t prepared for the consequences,” he said. [Bloomberg]Konrad Putzier

Related Articles

Make Greenland Great Again? Trump wants to buy Arctic territory

Make Greenland Great Again? Trump wants to buy Arctic territory

Hamptons’ priciest summer rental to host MAGA extravaganza next month

Hamptons’ priciest summer rental to host MAGA extravaganza next month

President Donald Trump and Deutsche Bank CEO Christian Sewing (Credit: Trump byMANDEL NGAN/AFP via Getty Images; Sewing by Thomas Lohnes/Getty Images)

Trump Org asks lender, landlord for a break

President Donald Trump with sons Eric and Donald Jr., and an aerial view of Trump Doral (Credit: Paul Morigi/WireImage, DANIEL SLIM/AFP via Getty Images)

Trump Organization properties losing $1M a day to pandemic

President Donald Trump (Credit: Drew Angerer/Getty Images; iStock)

In a bid to boost the economy, Trump may give new life to EB-5 program

President Donald Trump and HUD secretary Ben Carson (Photo by MANDEL NGAN/AFP via Getty Images)

Trump suspends HUD evictions, foreclosures amid coronavirus pandemic

Transportation Secretary Elaine Chao and Penn Station (Credit: Samuel Corum/Getty Images; Metropolitan Transportation Authority / Aaron Donovan)

Gateway tunnel faces more delays from Trump administration

Presidential elections affect the residential sales market significantly (Credit: Getty Images, The White House)

This is how presidential elections really affect home sales