US economy will hit snag in 2019: Dallas Fed’s Kaplan

Dallas Federal Reserve President Robert Kaplan on Friday said the U.S. economy is stronger than he originally thought but faces headwinds next year as the big boost from President Trump’s tax reform begins to fade.

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“Growth in the United States this year is going to be close to 3 percent,” he said during an exclusive interview with Maria Bartiromo. “What I’m conscious of is part of the bump this year is all due to the fiscal stimulus. The government spending that we talked about. Not the corporate tax reform so much, as the individual tax cut financed by increasing debt to GDP. That’s going to start to wane into '19 and '20.”

Kaplan’s views mirror those of Federal Reserve Chairman Jerome Powell, who spoke this week at the Dallas Fed about the state of the economy, saying that the government debt and the deficit has put the U.S. “on an unsustainable fiscal path.”

Just last month the U.S. recorded a deficit of $100.5 billion, a dramatic 59 percent increase from a year earlier.

Last summer, the administration estimated that the deficit would climb to $1.09 trillion this year and stay above $1 trillion for three straight years.

In Kaplan’s view, the need to moderate U.S. debt growth could turn into a headwind over the next several years. Kaplan also said that shifting workforce demographics could also slow further growth over the next two years.

“The big imponderable is productivity growth,” he said. “If we can get a surprise and a bump up in productivity growth next year then we can grow faster.”