“The U.S. economy has been motoring ahead for some time now, and in fact, that recovery is long in the tooth,” he said.
A new report by the Economist Intelligence Unit warns, however, that the prospect of further, more aggressive tightening of interest rates by the Federal Reserve will be too much for the U.S. economy to bear.
“We’re forecasting the Fed will be hiking rates three times this year, perhaps another four times next year, and we’re forecasting a mild recession in early 2020,” Staples said.
The research house doesn’t expect personal and corporate tax cuts in the United States to lead to a surge in business investment, because it believes the economy is already toward the end of a regular business cycle.
“Even if they did, or if Mr. Trump were able to pass a major infrastructure spending package, they would prove inflationary, causing the Federal Reserve to respond with a faster pace of monetary tightening that would offset the positive effect on growth,” the Economist Intelligence Unit report says.
However, Staples doesn’t think the recession will last long.
“We think it would be very mild, and we think if you compare the States with other advanced economies around the world, we still think the States is going to be in quite a good position to take the appropriate monetary action and cut interest rates,” he added.
The report said fiscal stimulus and a series of cuts by the Federal Reserve to its policy rate will help the U.S. economy to bounce back in 2021 and grow by 2.1 percent, followed by growth of 2 percent in 2022.
