President-elect Donald Trump’s monetary policies and plans to extend the tax provisions in the 2017 Tax Cuts and Jobs Act could create fresh inflation, higher interest rates and reduced growth, according to a post-election report from credit-rating agency Moody’s.
Trump wants to extend provisions of the 2017 Tax Cuts and Jobs Act, which the Congressional Budget Office has estimated will cost $4 trillion over the next decade.
Trump has proposed the extension, but hasn’t come up with a way to pay for it. Moody’s noted that higher tariffs on imported goods could generate revenue, but not enough to cover the cost of the tax cuts.
“It’s unclear how the tax cuts will be paid for – and thus it is unlikely that they will,” Moody’s analysts wrote in the report. “Revenues raised from the higher tariffs will help defray their costs, but the tax cuts will be largely deficit-financed.”
Congress has run a deficit every year since 2001. In the past 50 years, the federal government has ended with a fiscal year-end budget surplus four times, most recently in 2001. Both Moody’s and S&P have warned about the credit consequences of long-term deficit spending.
“In the near term, with the economy operating at full employment, the fiscal stimulus provided by the deficit-financed tax cuts will be inflationary,” according to the Moody’s report.
Overall, the credit-rating agency offered a dim view of Trump’s taxing and spending policies.
“The sum of Trump’s economic policies will thus result in some combination of higher inflation and interest rates – and diminished growth,” analysts wrote.
