There will be one thing dominating discussions of the United States economy for the next year or so: the 2020 presidential election.
The US economy will be one of the key issues in the election, and it is my belief that it will be one thing that will not be absent from the headlines for any length of time.
Full speed ahead.
And, we know who will be blowing the trumpet for any bit of good news about the economy and will blaming the Jerome Powell or the Democrats for anything that might not be so good.
We also know who will be jumping on any bad news coming out and who will be dismissing anything that might be good during this time period.
Policy wise, the push will be to add whatever stimulation can be concocted on the fly to juice up the stock market, exports, and/or farm prices.
One way to look at this situation is to say that the pressure in the economy will be for more expansion or greater wealth creation.
Another way to depict the scene is to say that all efforts will be made to prevent a slowdown or a disruption.
In other words, financial markets should expect that the pressure will be on to produce higher asset prices in whatever way possible.
But what about the economy itself?
Well, there are only fourteen months until the election arrives. But one could also say that there are only about ten months, give or take a month or two, to set the final stage for the 2020 election. By this time next year, we should have a pretty good idea about the state of the economy.
In terms of the lag in effect of economic policy, there is very little time to do anything systematic to impact the economy. The deal on the federal budget reached just a short while ago is probably the last Congressional action that can be achieved that might have any impact upon the economy.
Monetary policy has generally been assumed to have a six- to nine-month lag-in-effect to really move economic activity. Right now, there seems to be no appetite for changes in monetary policy that will make a major imprint on the economy.
Right now, the economy seems to be running at about a 2.1 percent year-over-year rate of growth, and the Federal Reserve does not see any appreciable change in this rate of expansion.
If this rate is actually achieved, real GDP will have grown at a 2.3 percent annual compound rate of growth for the time Mr. Trump has been in office. Not a very good rate of growth, but roughly consistent with what has been achieved for the full time span of the current recovery period.
And, if this is achieved, Mr. Trump will be able to say that he has presided over the longest period of economic expansion in American history, for the economy will be in its twelfth year of the current period of continuous growth.
The question I believe will be the crucial one is whether or not a 2.3 percent rate of growth for his term in office will be satisfactory for the president. Or, will he push for more, because a 2.3 percent rate of growth is not a very good result, historically, and the president might like to attain a little bit higher rate of growth to be more confident about his re-election possibilities.
After all, Mr. Trump came into office promising that he would get the economy moving at rates in the 3.0 percent to 4.0 percent range.
Given the fact that from this time on, monetary and fiscal policies cannot be expected to contribute much more, if anything, to faster economic growth, the only thing left for the president is economic changes brought about by executive order or some other form of executive action. This is certainly not out of the question for this president.
The problem the president faces is that current economic growth is being driven by the supply side of the economy. As I have written many times throughout the summer, the modest economic growth has been achieved primarily through modest increases in the growth rate of labor productivity and small increases in the rate of growth of the labor force.
These two forces are not going to be changed dramatically over the next two-year period. Thus, it would seem as if the growth rate of the economy will be bounded on the top by these factors that only change very slowly over time and really need longer-term policy efforts to show much upside growth potential.
If this is true, then little or nothing can really be done to change the growth figures for the upcoming election. We are, in a real sense, “locked in”. The most that can be done is to produce things that will possibly influence future outcomes.
The president can continue to press for Fed Chair Jerome Powell and the Federal Reserve to lower its policy rate of interest.
The president can call for a weakening of the US dollar in foreign exchange markets.
The president can continue to talk up stock prices, suggesting news policies and programs that will boost up corporate earnings in the future. He can also move to reduce regulations even further than he has done in his first term of office.
There are lots of possibilities of what the president can do in the area of farming, tariff protection and other means to keep foreign competition under control and perhaps provide some stability for farm prices.
There are things the president can do to try and stem recent discontent being expressed by labor unions, especially by the president of the AFL-CIO.
There are lots of ways that the president can use his executive power to promise help to those that are now hurting by the current state of the economy and the slow economic growth expected.
What these actions might be are not specifically known, but lots can be done.
Bottom line, over the next twelve months or so, the economy can expect a lot of pressure from President Trump to perform better, with a lot of emphasis on securing good numbers from more conspicuous sources… like the stock market.
This is what investors should expect and should plan accordingly. And, as I have written many times, credit inflation is alive and well. Deficits are going to be in the trillions. Federal Reserve support will not disappear. Executive orders will be appearing here and there. Other shocks may take the economy in a different way, but the picture I have drawn is where the politicians will be.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.