The likelihood the US economy to expand by 3% this year has declined in the past month, as the weak data and political concerns have hit confidence. These results come at a time when hopes for tax cuts and other growth-boosting policies pledged by President Donald Trump are weakening for allegations that he has attempted to influence an investigation into his national security adviser’s relationship with Russia. The allegations led to the largest US stock exchanges on Wednesday from the beginning of September 2016.
The rapid pace of expansion is vital to Trump’s broader economic program, but the US economy has grown at its slowest pace since three years in the first quarter – only 0.7% on an annual basis.
Although the latest poll among 100 economists, conducted between May 12 and May 18, shows that growth will recover in the second quarter to 3.2%, the projections suggest that this will be the best rate by the end of next year, as the annual average levels for this and next year will be below 3%. The poor growth estimates in the first quarter make it impossible for the US economy to reach the 3% target, as such result will require three consecutive quarters of over 5% annual growth.
The forecast for average growth in the first half is slightly lower than expected in the previous month. The consensus estimate is for growth between 2.4% and 2.5% per quarter from July this year to the end of 2018. Even the inflation expectations are more negative than last month. The consumer price index is not expected to reach the central bank’s target of 2% by the second quarter of next year.
These forecasts not only highlight the differences with the US administration’s expectations of a 3% growth (down from the earlier 4% mark), but also the real performance of the economy. The economists in several polls since the beginning of the year say the chances of achieving a 3% growth are small.
However, the Fed is expected to continue its plan to raise interest rates two more times this year after the 25 basis points increase in March. The survey predicts an increase of 25 basis points in the second quarter and a subsequent rise in the third, which will make the base interest rate between 1.25% and 1.50%. Most Fed representatives, at least in their comments, still seem determined to implement their normalization plan. This is one of the reasons why the interest rate rise in June is entirely at the table. After this increase, it will be more questionable whether or not there will be one more.