Conference Presentation, Panel
U.S. Overview: Post-Election America and the World
Milken InstituteRoss DeVol, Tony Fratto, Adam Hitchcock, William Lee, Richard Socarides, Ross Duvall, Tony Frada
- U.S. GDP growth is expected to stabilize around 3.2% following the 2015-2016 soft patch, though 2017 growth forecasts have been revised downward by approximately 0.25 percentage points, with broader growth rates of 3% to 5% viewed skeptically.
- Fiscal policy is projected to be galvanized through infrastructure spending and tax reform, but stimulus measures are unlikely to materialize until 2018, and significant GDP efficiency gains from these reforms are considered unlikely.
- Corporate cash flow is anticipated to increase via regulatory relief and tax reform, with approximately 60 cents of every new dollar expected to return to shareholders through dividends and buybacks, though substantial capital investment is deemed unlikely.
- Corporate tax changes face a "highly personality" regulatory environment and potential gridlock within the first 100 to 200 days, with the "honeymoon" period with Congress expected to be short-lived despite initial unified Republican control.
- Regulatory relief for small and community banks is predicted to occur immediately, whereas overriding Dodd-Frank for larger institutions will likely require 60 Senate votes, making the immediate focus a debate over cutting asset thresholds at $10 billion, $25 billion, or $50 billion.
- The Federal Reserve will face significant pressure, with Chairman Yellen expected to act with relative fearlessness but potentially face political retaliation, while President Trump is predicted to reshape the Board by appointing five new members and potentially imposing a "Taylor rule" requiring justification for deviations.
- Trade policy is expected to shift away from multilateral agreements like the TPP, which is considered effectively dead, toward bilateral renegotiations, with the administration likely to target multinational corporations and China while appealing to nationalist sentiment.
- Labor market dynamics may see low unemployment rates persist alongside significantly declining labor force participation, driven by emotional discontent regarding wage stagnation in hospitality, retail, and healthcare sectors which pay substantially below median levels.
- Long-term productivity growth is not expected to occur for several years even if infrastructure investment begins, and the rise of automated driving creates a realistic possibility of regulatory conflict and job displacement that the administration may eventually target.
- The administration's legislative agenda will likely avoid heavy-handed regulation and tax increases, but faces risks regarding the feasibility of its goals if it fails to deliver concrete job creation results within one to two years, as the President is expected to prioritize personal popularity over long-term party responsibility.
- Political maneuvering is expected to involve using the Fed as a bargaining chip for tax and trade concessions, with Republicans potentially receiving a more responsive central bank in exchange for support, while the administration may aggressively pursue civil rights and immigration issues through figures like Jeff Sessions.
- Economic decisions by individuals and businesses may be delayed in the coming year due to heightened uncertainty, characterized by an "earthquake in Washington" and a reliance on enforcement actions that effectively become rulemaking without new legislation.