Mark Zandi, chief economist at Moody’s Analytics, made headlines in June after publishing a report arguing that America would face a long recession if all of then-candidate Donald Trump’s economic policies were adopted. Now that Trump is headed to the White House, we wanted to know if Zandi’s views have changed. In a word: no.
“That was a hypothetical. If he got exactly what he wanted, yeah, he’d drive the economy into recession,” Zandi tells Alexis Christoforous in the video above. “But, of course, he’s not going to get everything that he wants.”
Zandi also believes Trump will not get what he wants when it comes to achieving his goal of annual US economic growth of 4%. Zandi says Trump’s proposals for corporate tax reform and infrastructure spending may boost growth from 2% to 2.2% or 2.3%, but not to 4%.
“To get to 3% or 4%, you’d have to change immigration law and allow a lot of skilled and unskilled legal immigrants into the country. And of course that is just the opposite of what he at least is ostensibly proposing,” Zandi said. “So without that I don’t see how you can lift growth to any significant degree.”
Zandi says Trump’s plan to boost infrastructure spending could help the economy, but he has concerns about how the Trump administration would pay for new projects. “Infrastructure spending today makes a lot of sense. But I do think we need to pay for it,” he said. “We shouldn’t do it in a way that adds to future budget deficits. So yeah, infrastructure spending would be great, particularly if we can finance it.”
Zandi says that under a prudent approach to infrastructure spending and tax reform, “the economy should do well, better than it would otherwise have done.”
But Zandi says if Trump moves to restrict trade and immigration and finances infrastructure spending and tax cuts by adding to the federal budget deficit, “then the economy’s going to be in worse shape. It’s not going to perform as well and recession risks will rise.”
And given that US job growth is strong and that interest rates are going higher (Zandi expects three to four increases in 2017 and 2018), Zandi expects the US economy to lose steam by the end of Trump’s term in office.
“Given prospects for fiscal stimulus under President Trump on top of a full employment economy, I think prospects for a recession or a weak economy toward the end of his term are going to rise,” he said.