The recovery of the US economy since the Great Recession has been an unsteady one. Following massive fiscal and monetary stimulus, the economy has grown for 10 straight years. However, the road ahead remains bumpy, and policymakers must navigate cautious policies to sustain the expansion.
The Federal Reserve has slowly raised interest rates to normalize monetary policy from crisis levels. Higher rates will weigh on interest-rate sensitive sectors like housing. They also threaten highly leveraged companies if they choke off refinancing and drive defaults. However, measured rate hikes are consistent with a healthy, growing economy. As long as inflation remains stable, the Fed is likely to proceed with care.
Fiscal policy also poses challenges. The tax cuts passed in 2017 provided only a temporary boost as the benefits fade. Meanwhile, the widening deficit raises risks of either growth-sapping tax hikes or spending cuts. Trade tensions with China present another threat as escalation could seriously impact US companies and farmers. Uncertainty surrounding trade policy could also dampen business investment.
While growth will likely slow from 2018, a 2019 recession seems unlikely. Underlying economic fundamentals like job growth and consumer spending remain solid. However, policy missteps or economic shocks could materially impact the outlook. Economic forecasters at Goldman Sachs expect growth to decelerate to around 2.5% this year.
The US economy has come a long way since the crisis but continues to face headwinds—both immediate and long-term. Thoughtful policymaking and avoiding further shocks will be critical to sustaining recovery over the next year. The road ahead will not be smooth but with prudent leadership, the longest US expansion on record may continue, albeit at a more modest pace. Navigating bumps in the road will require patience, careful data-dependence and a willingness to adjust policy quickly if needed to keep the economy on track. Though uncertainty prevails, crisis seems unlikely with astute management of fiscal and monetary levers. The economy remains resilient but could use a steadier policy hand at the wheel.
