Economists cast doubt on President Trump’s assertion in an interview aired Friday that the economy would have grown at a faster pace in 2018 — even as high as 4 percent — had the Federal Reserve not raised interest rates last year.
"If we didn’t have somebody that would raise interest rates and do quantitative tightening, we would have been at over 4 instead of a 3.1,” Trump said in a sit-down with anchor Maria Bartiromo on Fox Business Network.
The comments come just days after the Federal Reserve signaled it would not be raising rates again this year. The president has been critical of Fed Chairman Jerome H. Powell for the central bank’s gradual raising of interest rates — it did so four times last year. The president was reportedly so frustrated with his appointee that he asked internal and external advisers late last year whether he could fire Powell.
Economists say a 4 percent growth rate is difficult to reach.
”Four is just too high,” said Douglas Holtz-Eakin, president of the American Action Forum, referring to the gross domestic product. Even with the Fed’s four rate increases last year, “by any historic standard, monetary policy remains loose.”
The last time the U.S. economy grew at 4 percent over the course of an entire year was 2000, according to the Bureau of Economic Analysis. Growth stood at 2.9 percent for all of 2018, BEA data show. The economy’s growth in the fourth quarter of 2018 from a year earlier was 3.1 percent.
The economy last year received a big boost from the largest corporate tax cut in U.S. history, as well as additional government spending on military and domestic programs. But that stimulus is widely expected to wear off later this year.
Many economists had predicted the economy could not grow much higher than 2 percent. But Trump had insisted he could get to 3 percent annual growth or more.
Holtz-Eakin said Trump’s policies actually contributed to holding economic expansion in check.
“Most people believe that the combination of a government shutdown, trade tensions, things (Trump) is responsible for, caused the slowing economy in the second half of 2018. He can complain all he wants, but I am not sure the evidence is on his side.”
Phillip Swagel, an economics professor at the University of Maryland, said the U.S. economy would have grown faster had Trump had not initiated a trade war with China.
““I don’t know if it would have reached 4 percent, but it would have been stronger,” Swagel said.
The president has made the economy, unemployment and stock market performance the bedrock of his administration. He has consistently touted the markets as a measure of his success, and has criticized Powell on many occasions for being too aggressive in his rate hikes.
In fact, money remains relatively cheap. The yield on the U.S. 10-year Treasury, a closely watched measure because it affects everything from credit card interest to automobile loans, has been plunging. Mortgage rates also continue to plummet — good news for the economy. The 30-year fixed-rate average has slipped to 4.28 percent, according to data released Thursday by Freddie Mac. That compares with 4.31 percent a week ago and 4.45 percent a year ago.
Ed Yardeni, president of Yardeni Research, said “Trump is half right" in his assertion that Powell is responsible for holding back the economy. The Fed’s monetary tightening helped weaken global growth by strengthening the dollar. he said.
“At the same time, Trump’s trade wars probably offset much of the stimulative impact of his tax cuts on capital spending,” Yardeni said. “The good news is that if the Fed is done raising rates for a while and if the U.S. and China agree on a trade deal, both the U.S. and global economies could benefit from the resulting ’peace dividend.’”
In the interview, Trump also:
- Defended his recent criticism of the late senator John McCain for voting against the repeal of Obamacare. “He voted against repeal and replace, now he’s been campaigning for years for repeal and replace. I’m not a fan. After all of this time, think of this, repeal and replace, we would have had great health care.”
- Said he could find common ground with Democrats on infrastructure spending. “Yes we could work on a lot, we could work on a lot. The easiest thing is infrastructure, they want it, I want it. I spoke to [House Speaker] Nancy Pelosi about it the other day. We agree on it. We even like the type, I think, we like the type of infrastructure we’re talking about.”