The U.S. government has doubled down on fiscal stimulus with $1.5 trillion in tax cuts over 10 years and a bi-partisan budget that adds $300 billion to discretionary spending limits over the next two years.
But does priming the pump risk flooding the engine? Our economic forecast looks at:
- Boost from tax cuts: The deficit-financed stimulus is expected to lift economic growth to 2.7% in 2018 and 2.9% in 2019.
- Inflation: Faster inflation argues for a faster pace of Fed rate hikes, which help to dampen the impact of fiscal stimulus.
- Paying the piper: The federal deficit is expected to reach 5% of GDP in 2019. What are the consequences of the heavier debt load on future growth prospects? What could happen in the next downturn?