Fed Holds Steady as White House Budget Predicts Booming Economy
May 24, 2017
The Federal Reserve decided not to raise rates today due to the slowdown in consumer spending that took place earlier in the year. The Fed believes that the economy is still healthy, however, and may decide to raise rates in June. Meanwhile, the President’s budget is being further analyzed. Massive cuts to Medicaid and food assistance programs coupled with increases in spending on Defense and border security define the budget, but it is receiving criticism for overly optimistic economic growth assumptions.
- White House budget proposal plans a $3.6 trillion cut in spending over the next 10 years. The White House released its full budget on Tuesday with expected cuts in social safety net programs and the federal bureaucracy. The budget includes increases in spending as well with the Department of Defense receiving $54 billion more and a $1.6 billion allocation for President Trump’s proposed border wall. The biggest cuts are to Medicaid and food stamps, which lose $610 billion and $192 billion over the next decade, respectively. The budget assumes that, with President Trump’s tax cuts and deregulation, the economy will grow at 3% by the end of Trump’s first term, which is in contrast to the Congressional Budget Office which assumes a rate of 1.9%. Economists have also noted that the budget “double counts” $2 trillion in revenue over the next decade, however Mick Mulvaney, the budget office director, stands by the numbers. Other notable aspects of the budget include a decrease in federal aid to states. States that voted for Hillary Clinton would see a 4.8% decrease, while those which voted for the President would lose 1.2%. The budget also includes cuts to the U.S. emergency oil stockpile, which was unexpected. The budget is not likely to be passed as is, with strong Democratic opposition and even some Republican pushback. [Reuters]
- Budget plans to roll back Dodd-Frank and the CFPB. The White House budget proposal includes plans to reverse some of the Obama Administration’s signature reforms following the 2008 recession. The budget accounts for $35 billion in savings over the next decade due to these changes. The Consumer Financial Protection Bureau has been criticized by conservatives due to its broad authority and its organization as part of the Federal Reserve. Dismantling the CFPB was a major point of Trump’s candidacy. The Congressional Budget Office has scored a similar revised change to Dodd Frank, the Financial CHOICE Act, and found that it would save the government $24 billion. [The Hill]
Economic Indicators & News
- The Federal Reserve maintains current rates. The Board believes that the recent slowdown in economic growth is not permanent but nonetheless decided not to raise rates, pushing that decision back until June. The Fed was encouraged by the strength of the housing market and business investment, which they took as further signs that the slowdown in consumer spending will be short-lived. The policymakers are also in favor of lowering holdings in Treasury debt and mortgage-backed securities during this year. [Reuters]
- Gas prices increase slightly as inventories decrease. The Energy Information Administration’s weekly petroleum update has found that regular gas prices average $2.399 per gallon nationally, an increase of $.03 from the previous week. Diesel, however, has continued its five-week decline to an average of $2.539 per gallon. Commercial inventories decreased last week by 4.4 million barrels, but are still above average for this part of the year. [EIA]