(Wall Street Journal) Forecasters are increasingly optimistic the U.S. economic expansion could continue beyond the 2020 presidential election, aided by Republican tax legislation that is expected to lift growth over the next several years.
The slow-but-sturdy expansion that began in mid-2009 already is the third-longest in U.S. history and, if it continues into the second half of 2019, will exceed the 10-year record set by the 1990s economic boom.
Most of the private-sector economic forecasters surveyed in recent days by The Wall Street Journal said the odds of a new recession by late 2020 were below 50%. The average probability of a recession in the next year was 14%, with the odds creeping up to 29% in two years and 43% in three years.
Economists were more pessimistic about the outlook before Donald Trump was elected president in November 2016. In the Journal’s October 2016 survey, economists on average saw a 58% probability of a recession starting in the next four years.
The lower recession odds could reflect a number of factors, not least the economy’s strong performance over the past year. Another possible contributor is legislation overhauling the tax code that Congress may soon send to Mr. Trump’s desk.
Some 90% of economists surveyed said the tax bill would increase the pace of growth for the next two years, with most seeing a modest boost to the annual growth rate for gross domestic product. Forecasters remain split over its likely long-term effects: Nearly half, 47%, said growth in the long run would be unchanged or weaker than its current trend.
Those results were similar to economists’ predictions in October, when the tax plan was in an earlier form.
A plurality of economists surveyed, 42%, said they believed the tax bill, if enacted, would make a recession in the next three years less likely than it would have been had the tax code remained in its current form.
“Tax reform will foster greater capital formation and economic growth,” said Thomas Kevin Swift, chief economist at the American Chemistry Council.
Some 37% said the tax bill would make no difference and 22% said it would make a recession more likely by late 2020.
Some of the economists who warned the tax overhaul would increase the odds of a recession pointed to the possibility of aggressive interest-rate increases from the Federal Reserve if the central bank feels fiscal stimulus will cause the economy to overheat and generate damaging inflation.
“Tax-cut stimulus, if fully realized as its framers claim, will make for a very aggressive Fed response, upsetting the apple cart,” said Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center.
As 2017 draws to a close, forecasters predicted this year’s strong growth would continue into 2018, and the odds of a near-term downturn continued to fall.
Read the full report here: U.S. Economic Expansion Could Become Longest on Record