The Commerce Department changed Gross Domestic Product growth to 2.1 percent in the third quarter. Wilbur Ross reported 1.9 percent growth last month, but the business investment percentage was not as bad as reported. Consumer spending is the driving force behind the GDP growth numbers and the numbers are still better than some economists expected. But Consumer confidence dropped in the third quarter, so consumers stopped buying big-ticket items.
The Chinese want a phase one trade deal. China’s chief negotiator Liu He told the press China will stop intellectual property thief. And it will open its markets to foreign investors if Trump drops the December tariffs and reduces tariffs on several Chinese products. Mr. Trump and Bob Lighthizer want to keep the tariffs in place after China signs the phase one deal. That demand seems to be a deal-breaker for the Chinese.
The Feds won’t cut interest rates again in 2019. Trump’s trade war is the wild card in the Feds formula to keep the economy growing. Fed Chairman Jerome Powell knows the Chinese don’t pay tariffs. American consumers pay the tariffs. The total amount of tariff taxes consumers paid in 2019 is more than $40 billion. Mr. Trump likes to hide that fact from his voter base. But if he keeps the December tariff threat on the table, consumers will feel the tariff pain when they shop in 2020.
The president wants the Feds to cut interest rates below zero to stimulate the economy. Europe’s central bank did that, and Japan’s central bank did the same thing to stimulate its economy. But negative interest rates hurt future returns. Pension funds in Europe now feel the pain of those insane rates. Trump wants zero rates so consumers will borrow and then spend more. Consumer debt is out of control now, so adding more debt will slow down the economy, according to Wall Street economists.
Cutting interest rates is not the fix Trump needs to continue to boast about his great economy. Trump has to ease up on the tariff button if he wants the economy to grow at the 3.0 percent figure he promised his voter base. Third-quarter growth stands at 2.1 percent now that Wilbur Ross changed the GDP growth figure for the third quarter. Last January GDP growth was 3.1 percent, so Trump’s tariffs and his free-spending along with the 2017 tax cut continue to erode economic growth.
Several Fed members want to raise interest rates to stop consumer borrowing, but the pressure from Trump and investors makes that a tough decision to make.