The U.S. is headed for a recession in the next two years as excessive fiscal stimulus from the President Donald Trump administration takes the economy into unsustainable territory, Adam Posen, president of the Peterson Institute for International Economics, told CNBC Tuesday.
Posen, who served at the Federal Reserve Bank of New York in the mid-90s, said that GDP (gross domestic product) growth targets of 3 percent or more are unobtainable given current productivity and employment rates in the U.S. Add to that intended tax cuts and financial deregulation under Trump and the country will find itself trapped in a boom-bust cycle, Posen said.
"The work force is only growing at 0.5 percent and productivity's at 1 percent so it can't reach these 3-4 percent growth targets. If unemployment is, unfortunately, about as low as it's going to go, you can't pick this up.
Then you're going to get financial deregulation, which in some ways is a good thing but is likely to feed further credit boom, as it's always done in the past, so the Fed will start tightening against this – that's your boom-bust cycle."
Already the Federal Reserve is trying to manage signs of a growing U.S. economy by gradually increasing interest rates. Earlier this month, it hiked rates by 25 basis points, its first such move this year and only the third since the financial crisis. However, further increases are expected this year, with Posen anticipating three extra hikes by December and more still in 2018.
"The Fed is going back to normal in the sense that it's not scared to do the moves that it would normally do in response to the forecast," he said.
He added that anything Trump outlines in terms of fiscal policy is only likely to spur the Fed's rate hike agenda.
CNBC
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.