President Trump’s economic team on Wednesday declared the end of the “new normal” of the Obama-era’s stagnant wages and lackluster economic growth, forecasting a return to the robust and dominant American economy that will last into the next decade.
The first economic report by the president’s Council of Economic Advisers said tax cuts, deregulation and other pro-growth policies would increasing economic growth to 3.1 percent in 2018 and keeping it above 3.1 percent through 2020.
The gross domestic product (GDP) has been hovering around 2.5 percent following the Great Recession of 2007, which was deemed the “new normal” that replaced historic norms of 3 percent and higher.
“The headline of our growth chapter is that there is not a new normal to look to, there is just normal,” said Kevin Hassett, chairman of the Council of Economic Advisers. “That normal is happening because we’ve restored economic policies to where a sensible, rational country would put them.”
The report also forecast that the labor market would continue to strengthen in the near term, with the unemployment rate falling to 3.7 percent in 2019 from the current 4.4 percent. It called the declining unemployment a “predictable consequence” of strong growth.
Although the report predicted relatively low inflation, which is said would be close to the Federal Reserve Board’s 2 percent target, it acknowledged that a strengthening labor market would put upward pressure on inflation by 2020.
Mr. Trump vowed to end a pattern of presidents breaking promises about expanding economic opportunity.
“For too long, leaders have promised growth, but done little to change policies that drove business away and pushed our factories and jobs offshore,” he wrote in an introduction to the report. “My Administration’s pro-growth policy agenda is reversing these trends and ending the disappointments of the past.”
The report was more restrained in its forecasts of GDP than Mr. Trump’s claims that economic growth could top 4 percent. But the 568-page report included familiar claims about that the far-reaching impact of corporate tax cuts. It estimated the tax cuts would boost the economy by $700 billion to $1.2 trillion over a decade, lifting average household income by $4,000 a year.
Democratic lawmakers and many economists have challenged the administration’s tax cut math.
“This is their latest installment of trickle down fairy dust,” Jared Bernstein, an economist at the liberal Center on Budget and Policy Priorities, told The Associated Press.
The report forecasts a baseline annual growth rate of 2.2 percent through 2028. But full implementation of the Trump agenda would push real GDP to at least 3 percent through 2024, according to the council.
The current economic uptick was spurred by the massive deregulation and the boost from tax cuts singing into law in December. But the forecast relied on expectations that the rest of the president’s economic agenda would be enacted.
Those initiatives, which all face an uncertain fate, include a $1.5 trillion infrastructure plan, overhauled trade policies, health care reforms and a cybersecurity offensive.
“There’s still a lot of work to be done to get economic growth to the rate this administration thinks the American people deserve,” said Mr. Hassett.
He said the report was more than a rebuttal of President Obama’s economic policies. For instance, the tax cuts fixed high corporate tax rates that have constrained business growth and contributed to offshoring of jobs going back several administrations, he said.
The strong growth that began last year — real GDP increased from 1.8 in 2016 to an estimated 2.5 in 2017 — has some analysts raising red flags about the economy overheating.
Mr. Hasset played down the concern that the boom would go bust, citing the effects of infrastructure projects, tax relief and workforce development.
“All of those things if they work should put downward pressure on inflation,” he said.