Last week, the Commerce Department released a preliminary estimate showing the U.S. economy grew at 2.6 percent in the fourth quarter of 2017. This 2.6 percent expansion came as somewhat of a disappointment to economists, who anticipated a “hat trick” of 3 consecutive quarters of 3-plus percent growth, as well as to the New York Fed, which predicted the economy would grow around 4 percent.
But while the final quarter of 2017 fell a bit short of expectations, overall the U.S. economic picture remains positive heading into 2018. With President Trump’s tax cuts now in effect, good news has been pouring in from American businesses that have raised wages and delivered bonuses because they can now keep more of their earnings.
However, while Trump’s tax cuts stand to deliver superior economic growth in 2018, there is one concerning number in the GDP report — and it’s not “2.6”. As MarketWatch reports:
Fresh evidence of some pickup in inflation came Friday, the government reported that inflation as measured by the personal consumption expenditure index, rose 2.8% rate in the fourth quarter. While core inflation is still running at a 1.5% rate year-over-year, that is the highest quarterly gain since 2011. [Emphasis added]
The pickup in inflation is no blip. The U.S. dollar has fallen by roughly $100 per ounce against gold since President Trump took office, and oil prices are also climbing. More worrisome, Treasury Secretary Steven Mnuchin’s remarks at the World Economic Forum in Davos appear to suggest that a weak U.S. dollar is a conscious policy decision by the administration.
In Davos, Secretary Mnuchin claimed “a weaker dollar is good for us as it relates to trade and opportunities,” and that his views on monetary policy are “perhaps slightly different from previous Treasury secretaries” who have argued for a strong U.S. dollar.
Putting aside the economic arguments for why Mnuchin is wrong on the “benefits” of a weak dollar (you can read those here), it is concerning that a U.S. Treasury Secretary would display such poor judgement in telling global markets — the same markets that buy our debt — that we intend to repay them in devalued dollars. To the Trump administration’s credit, they addressed this slip-of-the-tongue right away, with President Trump, Wilbur Ross, and Steven Mnuchin all attempting to walk back those comments.
But rhetoric alone won’t alleviate concerns about the U.S. dollar — which fell to a 3-year low following Mnuchin’s statements. Inflation is starting to pick up. Now is the time for the Trump administration to show that preserving the dollar’s value will be key pillar of the President’s economic agenda going forward. Only a stable dollar, coupled with Trump’s historic tax cuts, will ensure that 2018 is a year of truly booming economic growth.