Trump’s fiscal spend ‘too large, too late’

Trump’s fiscal spend ‘too large, too late’

US dollars

The chief economist of a global investment manager says he is sceptical of the impact US President Donald Trump’s fiscal package will have on the global economy.

With the global economy likely to enter its seventh year of below-average growth this year, State Street Global Advisors chief economist Christopher Probyn has cast doubt over the near-term efficacy of Mr Trump’s promised fiscal spending.

“I am not really bearish but I am sceptical that inflation is going to take off,” Mr Probyn told nestegg.com.au.

 

“When the unemployment rate is at 4.7 per cent [and] wage inflation is at 2.9 per cent, I have come to the conclusion that maybe this is a little too large, too late in the business cycle to be at its best.”

While it has been anticipated that Mr Trump’s fiscal spending would kick-start global growth, Mr Probyn said it was unlikely the US would see the 3 per cent growth that has been speculated.

“I think this is the key issue in the global economy [but] it is not big enough to get it to 3 per cent,” he said.

“I’m on an economic advisory commission for the US Bankers Association and we looked at a range of estimates and there was only one person who thought he could get it to 3 per cent.”

However, Mr Probyn remained bullish about the possibility of the US Federal Reserve raising rates, striking a mix of fiscal and monetary policy that would be inflationary over the longer term.

“My base view is if he gets his fiscal stimulus, then we could see three rate hikes this year and much of the fiscal stimulus will begin to have a larger effect at the start of next year, presaging perhaps three more hikes next year,” he said.

“The US is just 16 per cent of the global economy so I don’t believe that the kick can be large enough to transform the global economy, but it can be large enough to transform the mix in the United States.”

Trump’s fiscal spend ‘too large, too late’
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