The U.S. economy is doing quite well right now, but it could falter over the next couple of years as the stimulus fades away, said Paul Ashworth, chief U.S. economist for Capital Economics, and the winner of the Forecaster of the Month award for March.
“We’ve been optimistic,” Ashworth said in a telephone interview. He and his colleagues had long assumed that the united Republican government in Washington would deliver a “sizable fiscal stimulus” and they were right. The tax cuts and the end of spending restraints should give the economy a nice boost this year and into next.
But what happens next? “We are concerned with fiscal stimulus wearing off,” Ashworth said. He expects a “weaker” 2019 and 2020. Indeed, Capital Economics expects the Federal Reserve to be cutting rates in 2020.
“The Fed’s economic projections, which envisage the economy growing above trend all the way out to 2020, strike us as far too upbeat,” wrote senior U.S. economist Michael Pearce in a recent note to clients. “The fiscal stimulus will provide a one-off boost to incomes and spending, but unless it expands the supply capacity of the economy, growth will inevitably fall back.”