Capital spending boom will continue for the next 3 years: Hassett

By U.S. EconomyFOXBusiness

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White House Council of Economic Advisors Chairman Kevin Hassett on Monday said a capital spending boom is giving the U.S. economy momentum.

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“The bottom line is that a capital spending boom like the one that we’re in usually takes three to five years,” he told FOX Business’ Maria Bartiromo. “We’ve had about a 10 percent increase in capital [spending] since this time last year and that should continue if it’s a normal spending boom for the next three to five years.”

Gross domestic product (GDP) increased 3.5 percent in the third quarter, according to a revised estimate from the Bureau of Economic Analysis. In the second quarter, GDP increased 4.2 percent.

Last month Federal Reserve Chairman Jerome Powell said he now sees the central bank’s current benchmark interest rates “just below” neutral. The Fed funds rate is currently in a target range of 2 percent to 2.25 percent.The Fed raised interest rates three times this year and signaled that it would hike rates again in December. They also projected three rate hikes next year.  The Fed raises interest rates to prevent the economy from growing too fast as a result causing inflation.

“I wouldn’t want to give the Fed advice,” said Hassett. “But we said last year that we’d have 3 percent growth and by the end of the year we’d have decelerating inflation because of the capital spending boom — the increase in supply. And that’s exactly what we’re seeing in the data.”

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However, some say the Fed won’t be able to raise rates as much as they want next year.

In a recent interview on FOX Business, Ray Dalio told Maria Bartiromo that he doesn’t expect three rate hikes in 2019 because the economy will slow down.

President Trump’s tax overhaul, the Tax Cuts and Jobs Act, passed last December, slashed the corporate income tax rate and charged businesses a one-time tax on profits held overseas. As a result, companies repatriated over $300 billion in the first quarter.

Hassett said because the tax cuts are retroactive, capital spending will pick up in the fourth quarter.