WASHINGTON — Questions about a range of federal policy initiatives from the Trump administration are already leaving investors uncertain about near-term economic prospects and spurring consumers to curb spending, developments that could stall growth in an otherwise healthy economy.
Speaking at the National Association for Business Economics conference in Washington on Monday, Michael Strain, director of economic policy studies at the American Enterprise Institute, said President Trump's approach to levying tariffs on major U.S. trade partners has left markets both afraid of the downside effects of a higher-tariff global trade picture and uncertain about whether they will come to fruition.
But in the absence of a clear policy, the markets and consumers are likely to avoid making significant purchases, which itself is a drag on economic growth, Strain said.
"The big X factor is the manner in which this is levied," Strain told the press at the conference. "If this continues to be stop and start, stop and start, I think that will drag down investment spending, and that will possibly drag down consumer spending and exacerbate the negative effect of it. My sense is that, after the way the last month has gone, even if [Trump] comes out with a definitive, decisive statement tomorrow, that won't alleviate all the uncertainty people have about what's actually going to happen."
Blerina Uruçi, chief U.S. economist with the fixed income division of T. Rowe Price, said the impact of uncertainty around tariffs can be observed by the larger personal consumption spending in the fourth quarter of last year, when people bought more durable goods in anticipation of a new president in the White House.
"The way things are going, it's clear that financial markets and consumers are bracing themselves for higher tariffs," Uruçi said. "Directionally, we should be expecting higher inflation and slower growth and overall for the global economy and trade channels to be less efficient. It's very uncertain right now."
Experts also questioned the budgetary impact of the government layoffs and cuts to federal spending implemented by the newly formed Department of Government Efficiency, led by White House advisor and billionaire entrepreneur Elon Musk.
Philip Swagel, director of the Congressional Budget Office, said there are "initial signs" from data on federal spending outlays that indicate that the government is spending less than it was projected to spend prior to Trump's inauguration, but he could not quantify how much less spending was happening and was quick to emphasize that the CBO wouldn't have definitive evidence until later in the year.
"Outlays in some accounts are lower than would have been expected … at the time of our baseline," Swagel told the media. "We don't know that this is the final budgetary outcome because, of course, there are court proceedings and things like that."
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said at the conference that she thinks the purpose of DOGE in identifying areas of redundancy and inefficiency in the federal government's operations is long overdue and a worthwhile endeavor. But she emphasized that the manner in which it is being undertaken is itself in many ways inefficient and should be undertaken with Congress as a partner.
"It's a great concept," MacGuineas said. "But I am definitely not [endorsing] the 'act now, evaluate later' sequencing. This does not make sense to me — tell a bunch of people that they're fired and then figure out what they do and whether [or not] it's important. The biggest issue of course is the legality of all this. Plowing through this and trying to bypass Congress is a dangerous, dangerous precedent."
The outcome of ongoing tax bill negotiations is likewise uncertain. Strain said that tax bills are difficult to negotiate under normal circumstances, but the narrow majorities that Republicans enjoy in both houses and the diversity of opinion on important aspects of the bill within the Republican caucus mean that there is a real possibility that Congress is unable to pass a bill before the 2017 tax cuts expire at the end of the year.
Previous tax bills — like the tax cuts passed by Ronald Reagan in 1986 and the 2017 cuts passed during Trump's first term — have been grueling affairs that very nearly did not get completed, and did so with considerable concessions. While there is broad support for extending the tax cuts for lower-income earners, making it likely that the cuts don't expire completely, Strain said there is a considerable chance that a legislative package of the kind that the White House envisions will not materialize.
"There are different groups of Republicans up on the Hill who are in wildly different places from one another," Strain said. "Leadership really matters in these situations. And [House] Speaker [Paul] Ryan in 2017 played a huge role in rallying rank-and-file members around the package, and even then they lost, what, a dozen Republicans? I don't see a Speaker Ryan figure up on the Hill, and I don't see a Ronald Reagan in the White House."
