Wall Street is getting seriously gloomy about the economy, with
recession warnings mounting and stocks tumbling just as U.S. President
Donald Trump prepares to fire up his reelection campaign machine,
according to Politico.eu reports.
Over just the last few of days, economists at Goldman Sachs, Morgan
Stanley and Bank of America all warned that Trump’s bitter trade war
with China is taking a bigger bite out of economic growth than
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The warnings came as stocks suffered another big dip on Monday with
the Dow closing off nearly 400 points, or 1.5 percent. The blue-chip
index closed at 25,897, over 700 points lower than it was in January
of 2018 before Trump’s trade fights began in earnest.
The collective wisdom now spreading across Wall Street is that no
trade deal will be struck with China before the 2020 election;
business investment will continue to sag; and a series of
interest-rate cuts from the Federal Reserve won’t be enough to juice
more growth out of an economy now in its tenth year of expansion — the
longest stretch in American history.
“It makes sense for everyone to be downgrading, because everyone
assumed we’d have some kind of trade deal with China by now and we
don’t,” said Megan Greene, an economist and senior fellow at Harvard’s
Kennedy School of Government.
Wall Street analysts expect at least one more rate cut this year and
possibly two or three.
“And now we have the risk of the trade war turning into a currency
war,” she said. “The consumer is still pretty strong, but business
investment looks really bad and if it was going to pick up again it
would have by now.”
The president has transitioned from boasting about stock market gains
to blaming the Fed for recent declines and softness in the economy.
Overall economic growth cooled to a 2.1 percent pace in the second
quarter after nearly hitting Trump’s goal of 3 percent last year
following a round of tax cuts and higher federal spending. And he’s
promised that he will win the fight with China.
“The Fed’s high interest rate level, in comparison to other countries,
is keeping the dollar high, making it more difficult for our great
manufacturers,” Trump tweeted last week.
Economists, however, note that interest rates adjusted for inflation
remain very low by historic standards. And few businesses report
having any trouble getting credit. The central bank last month
reversed course and cut rates by a quarter point, citing uncertainty
from the trade war. Wall Street analysts expect at least one more rate
cut this year and possibly two or three.
Instead of blaming the Fed, Wall Street economists are citing Trump
himself as the biggest anchor on markets and the economy.
“Fears that the trade war will trigger a recession are growing,”
Goldman Sachs economists led by Jan Hatzius wrote in a note to clients
over the weekend. “We expect tariffs targeting the remaining $300
billion of U.S. imports from China to go into effect and no longer
expect a trade deal before the 2020 election.”
Goldman increased its estimate of the potential economic hit from the
trade war to 0.6 percent of gross domestic product, both through the
direct channel of higher costs due to tariffs and reduced investment
by businesses afraid of what might happen next. Goldman now expects
the economy to grow at just 1.8 percent in the fourth quarter of the
Bank of America analysts led by Michelle Meyer in a note out on Friday
increased their warning of a recession by 2020.