The economy, as measured by gross domestic product (GDP), grew at 4.2% in the second quarter. It slowed to 3.5% in the third quarter. Meanwhile, Q4 projections have been coming in closer to 2.9%.
An optimistic “take” would be to exclaim that the 2% pace that has been the hallmark of the current expansion is now in the rear-view mirror. For 2018 and beyond, we have kicked it into a higher gear (3%) due to tax cuts and regulation curtailment.
A less rosy perspective? Economic growth has peaked.
Keep in mind, the U.S. economy required $3.5 trillion in Federal Reserve bond-buying stimulus and $9.8 trillion in new government debt to maintain the “New Normal” (2%) from 2009-2017. Tax cuts financed by $1 trillion plus in new debt in 2018, coupled with a Fed that has yet to reduce its balance sheet meaningfully ($4.1 trillion), has taken us to a 3% annual average temporarily. Going forward? Federal Reserve balance sheet reduction combined with tighter rate policy will slow the economic growth train.