The inauguration of a new government in Washington raises numerous questions about the US economy for 2017, mainly derived from some of the President elect’s campaign promises. True, the private sector has welcomed some of these promises, such as tax cuts, less regulation and more infrastructure spending.
By contrast, some protectionist promises generate concern, such as to dismantle free trade agreements, or to impose tariffs on products of companies that invest abroad. Additionally, in sectors such as agriculture, hospitality and entertainment there is concern about the promise to deport millions of undocumented workers.
Given the fact that the Republican Party now controls both Congress and the White House, the first question is if the Congressional Republican leadership will support this ambitious agenda, because it contains some elements which contradict several traditional Republican precepts.
The next question is how the monetary policy stance will adapt to the new context, if it is true that there will be a less austere fiscal policy. After all, the economy is growing moderately, it is close to full employment and inflationary expectations are rising. Last December, the federal funds rate increased by a quarter of a percentage point, anticipating more increases for this year.
The last question has to do with oil prices. It remains to be seen if the production cuts, agreed last year by the Organization of Petroleum Exporting Countries and other non members, will keep crude prices stable at around US $50 per barrel.
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