Federal fiscal policy is entering uncharted territory, according to Goldman Sachs, with Congress voting twice in the past two months to expand the budget deficit despite an already elevated level and an economy that doesn’t need any fiscal stimulus.
The U.S. economy is firing on all cylinders, with virtually full employment and solid corporate earnings growth, and the tax overhaul signed by President Donald Trump expected to provide another boost.
Yet in a research note, Goldman provided commentary on the longer-term sustainability of public debt, adding that, at the moment, the debt is within the range of several other developed-market economies, although at the high end.
In Goldman’s view, the U.S. Treasury should be able to continue borrowing at relatively low rates. “As long as the Treasury can borrow at a nominal interest rate below the rate of nominal GDP growth, which they expect for several more years, the U.S. can run a small primary deficit while maintaining a somewhat stable debt-to-GDP ratio,” the bank added.
Goldman believes the positive effect of the tax overhaul should extend into 2018 and 2019, when it will end.
In early January, the International Monetary Fund said tax overhaul will help boost U.S. and global growth, and it upped its growth forecast for both 2018 and 2019 by 0.2 percentage point to 3.9%.“The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes," the IMF said in its World Economic Outlook report