It seems increasingly clear that there will be no fiscal stimulus, at least not in 2017. Attention is now focused on intrinsic economic trends. Survey results and production statistics are looking rather upbeat, but household consumption is slowing. In March, employment slowed sharply. Although it is too early for this to be a real source of concern, when taken in conjunction with inflation, which is no longer accelerating, it could provide the Fed with reasons for a break in the normalisation process. Yet there is no doubt that the Fed will seize every possible opportunity to move away from the ZLB. If prices and employment were to regain some strength in June, then the Fed could increase rates again, with hopes for a third one by the end of the year.
The fiscal stimulus that many were certain would follow Donald Trump’s election is looking increasingly like an empty promise. The president still has not published his recommendations for budget revenues for the next fiscal year: only his spending proposals are available. As we expected, there is no trace of an infrastructure investment plan. As to taxation, Mr. Trump seems to have become disinterested…
Fiscal policy
The financial markets have been exuberant over Donald Trump’s election. This shows their faith in the promises of a fiscal stimulus – a mix of tax cuts and spending increases – that would boost the economy and widen the deficit, the perfect formula for increasing inflationary pressures, and that could only lead the Fed to adopt a more restrictive monetary policy. This has kept interest rates under pressure. Yet President Trump’s first 100 days in office paint a very different picture.
In the United States, the budget process is particularly long and complex. To sum up, the president and the two chambers of Congress each make budget proposals, and then work to reconcile their differences. But the process does not stop there. Congress must then vote on appropriations bills to finance the Federal government. These bills do not always cover the entire fiscal year, and sometimes Congress must vote on short-term or very shortterm stop-gap resolutions to keep the government running, as was the case in spring 2011. Congress must also authorise the Federal government to take on more debt, or to be more precise, to raise the debt ceiling, as it does more or less regularly, often to great trepidation as in summer 2011.
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