This week, stocks dropped sharply after the first congressional testimony of Trump's new Federal Reserve Chairman Jerome Powell. Why? Perhaps because investors interpreted his comments as raising the odds that the central bank will accelerate its pace of interest rate hikes. The result could be higher-than-expected borrowing costs and lower corporate profits.
As it happens, just as Powell was alerting markets to the Fed's possibly more hawkish turn, the Drudge Report was blaring a headline that Trump was ready to announce his plans to run for re-election in 2020 and appoint a digital guru to run the effort. But clever Facebook ads won't be enough to win the president a second term. Team Trump is surely counting on the economy to provide a powerful tailwind for the campaign. Indeed, new forecasts from the White House economic team anticipate 2018 will be the start of a long-term upturn in economic growth.
Wall Street economists aren't nearly as bullish. Yet they do acknowledge the economy's considerable near-term momentum, thanks in part to fiscal stimulus from the Trump tax cuts and higher Washington spending. Trump might well head into his re-election year with an unemployment rate sinking toward 3 percent. The lowest jobless numbers since Eisenhower was in the Oval Office could help persuade swing voters that Trump has indeed made America great again.
Unless the Fed mucks things up — as it has in the past. MORE