The Trump economy is headed towards a decline, some economists claim. The growth witnessed in the first half of this year was fueled by the tax cuts, and we may have seen the peak in the second quarter. Now, the economy is expected to lose its impressive growth rates.
According to a report by CNBC, major firms this have released economic forecasts for next year. Both Goldman Sachs Group Inc (NYSE: GS) and JPMorgan Chase & Co. (NYSE: JPM) see growth slowing to below 2 percent in the second half of 2019. At the same time the two firms expect the Federal Reserve to raise interest rates four times. Other economists believe the Fed may have to move at a slower pace.
There are several factors mentioned in the reports explaining the expected decline in economic growth. At the top of the list are Fed interest rate hikes, and of course the possible impact of tariffs and trade wars assuming they will continue. Economists do not foresee a recession next year, but by 2020, one seems more likely, some experts said.
Joseph LaVorgna, chief economist Americas at Natixis, explained according to CNBC, “It depends on the Fed. If they continue along the current [interest rate hiking] trajectory they are following … I think [there’s a recession in] the first half of 2020.” LaVorgna expects 2.5 percent growth next year, though slower in the second half.
Looking at the performance of the stock market in 2018, all the gains made in the first half the year are wiped out. Data reveals that about 40 percent of the stocks in the S&P 500 index have seen at least a 20 percent decline, some are now at bear market territory. Meanwhile, CNBC explains, credit spreads have widened in both the high yield and investment grade corporate to 2016 levels.
James Paulsen, chief investment strategist at Leuthold Group, said in a statement, “This market to me now is telling you that investor recession fears are escalating. Whether that’s right or not, I still lean toward the view we’re going to avoid it, but we’re going to be really scared of it. I think we’re going to break the previous lows, and be scared to death that either the bull market is over or a recession is here, and that might be a good opportunity to buy.”