US fiscal policy: A pro-growth agenda – Goldman Sachs

Research Team at Goldman Sachs notes that Trump does intend to prioritize an aggressively pro-growth fiscal agenda of tax cuts, deregulation, infrastructure spending and defense spending. 

Key Quotes

“US fiscal stimulus is a welcome growth and reflationary impulse, especially in a weak global growth environment where the scope for lowering real policy rates remains constrained by low inflation and the zero lower bound on nominal rates. And Republican control of congress gives such an agenda a good chance of being enacted. The President-elect’s proposals seek mutually incompatible goals — higher spending, lower taxes, and lower deficits. And with only a slim majority in the Senate, he will need to win over the most fiscally conservative members of his caucus, which will constrain the scope of deficit spending. Nevertheless, deficit spending is what we expect.”

“The new administration does, of course, bring the potential for significant downside risks. For one, Mr. Trump is a highly unconventional and unpredictable politician. His ability to lead and execute in government remains unknown. Second, his desire to aggressively renegotiate better trade deals poses the risk of retaliatory actions and breakdowns in trade. Third, he has also been critical of the Fed, and with at least two FOMC seats turning over this year, there is a risk of policy discontinuity. Finally, while Trump may have run as a Republican, his policy views do not fit cleanly into the party’s traditional policy platform. His legislative agenda may prove harder to pass than is commonly thought, and may cause him to shift from his pro-growth agenda to areas where he has more autonomy (such as trade). But, so far at least, the incoming administration has signaled a legislative agenda that is firmly pro-growth.”