Every now and then it is satisfying to set the record straight. The Fed added their two cents yesterday to the hand-wringing about President Trump’s tariffs, and the dampening impact they may have on the economy. They left rates unchanged, even though inflation has come within their stated goal and growth appears to be slowing. I wrote a piece for The Hill about Jay Powell’s seeming politicization; his jumbo 50 basis point cut last September was implemented in spite of economic numbers no more supportive of a cut than what we’re seeing today. My point is not so much that the economy desperately needs a rate cut but that people trying to buy a home, for example, are being hurt by Powell’s stubbornness. And, that our country, with $36 trillion in debt, much of it short term, would benefit from lower rates. On that, President Trump is correct.
So how is Trump’s economy doing? Goldman Sachs came out this morning with revised forecasts that indicate it’s doing better than they had expected. They conclude that the tariffs will have less impact on the economy than they had thought; consequently they have raised their estimate for fourth-quarter growth to 1.25% from 1.0%, and now predict that unemployment will top out at 4.4%, down from their previous forecast of 4.5%.
Also, they estimate the odds of a recession over the next 12 months at 30%, down from 35% previously.
Importantly, they are also slightly less concerned about the impact tariffs might have on inflation: “Inflation readings, while offering only limited evidence at this point, suggest a slightly smaller impact on consumer prices and therefore on real income and consumer spending than was estimated earlier.”
And, in addition, the GS folks conclude that concerns about the “dollar’s decline” are “overdone.” No kidding. Those analysts eagerly predicting the demise of the dollar as the global reserve currency have one teeny problem- they cannot find a substitute. The Euro? Really- the countries of Europe struggle to grow, have shrinking populations and suffocating regulations. The yuan? Hardly; China’s problems make ours look trivial – and manageable.
The U.S. has but one urgent need: to cut government spending, which we hope Congress will do. Be aware that the Big Beautiful Bill is not the only chance GOP legislators will have to trim spending; it is just the beginning.
Bottom line:
President Trump is well aware that if the economy goes into a tailspin over the next 12 months he will lose the Republican majority on Congress, and his agenda will be toast. He’s not stupid; he’ll manage the tariff and trade negotiations to avoid that calamity, with the help of Treasury Secretary Scott Bessent. To the extent that “uncertainty” – the prevailing buzzword describing business sentiment – cuts into investment and planning, they will try to resolve our outstanding policy issues.
In part, that requires passing the Big Beautiful, Bill. Republicans in Congress need to make that happen, and they will.
