US: Getting a grip? - ING

President Trump may well be tweeting that there is “no White House chaos”, but to many people the evidence suggests otherwise, according to James Knightley, Senior Economist at ING.

Key Quotes

“At the very least his administration in the midst of a deeply challenging period. The collapse of healthcare reforms, ongoing investigations into ties with Russia and what feels like a revolving door amongst key White House staff have seen his poll ratings plunge to new depths. This means progress on tax reform is of vital importance. With mid-term elections just 15 months away, Trump needs a major “win”. Otherwise he risks losing the Republican majority in the House of Representatives, which will make delivering other election promises near impossible.”

“Little progress will be made over the summer and when politicians return on 5 September they will have to deal with bills to raise the US debt ceiling and to avoid a government shutdown. This is unlikely to help the hostile environment in Washington and will add to the sense that little will be achieved ahead of the November 2018 midterm elections given campaigning will start well beforehand. Should the Republican’s lose their majority in the House (the Democrats need to gain 24 seats with all 435 seats up for grabs), or the Senate (this is unlikely as there are only 8 currently Republican held seats being voted on versus 23 Democrat seats), then Trump’s ability to pass legislation will be heavily curtailed.”

“The lack of tax reform and infrastructure spending means that the President’s predictions of 3%+ GDP growth in coming years look unattainable. Instead, 2-2.5% growth looks the most probable scenario. After all, business surveys are in good shape, employment creation is healthy and the weakness of the dollar is boosting international competitivness. This is not bad, but in an environment where the perceived inflation threat is minimal, market interest rate hike expectations will remain muted.”