The United States could be in store for a recession within the next two years, warns Adam Posen, president of the Peterson Institute for International Economics.
Speaking in an interview with CNBC on Tuesday, the economist explained that the current administration’s fiscal stimulus, which he referred to as excessive, will take the national economy into unsustainable territory.
He explained that the gross domestic product (GDP) growth targets of at least three percent will be unlikely to occur, citing present productivity levels and employment rates. Posen believes that the U.S. will be trapped in a boom-bust cycle when you add in tax cuts and financial deregulation, which he says will spur credit creation.
“The work force is only growing at 0.5 percent and productivity’s at 1 percent so it can’t reach these 3-4 percent growth targets. If unemployment is, unfortunately, about as low as it’s going to go, you can’t pick this up,” he told the business news network.
“Then you’re going to get financial deregulation, which in some ways is a good thing but is likely to feed further credit boom, as it’s always done in the past, so the Fed will start tightening against this – that’s your boom-bust cycle.”
Moreover, anything President Donald Trump says will just encourage the Federal Reserve to raise interest rates even more. Posen projects an additional three rate hikes by the end of year.
“You’re nearing the end of this Fed regime and it’s not just Chair (Janet) Yellen, Vice-Chair (Stanley) Fischer (who get a say), President Trump gets to appoint five members of the seven member Federal Reserve Board of Governors in the next 10 months and so you want to get this policy of tightening underway before that uncertainty kicks in,” stated Posen.
The printing press at the U.S. central bank has been moderating, and economic expansion has been going on for nearly a decade. It can’t last. It isn’t entirely out of the realm of possibility that a recessions by election season.
–AM
Baby Boomers retiring at the rate of 10,000 per day. Buying less to stretch those retirement dollars 20 years or more, will be a big push into recession. Interest rates going up will tighten credit and stagflation will result. We will look back on 2008 and 2009 referring to them as the good old days of cheap credit and low prices. I just can’t wait for this train wreck that the FED is bring on the world in 2019 or 2020. NOT!