U.S. Markets closed

6 Trump predictions for 2019

Rick Newman
Senior Columnist

The economy was strong in 2018, but stocks yo-yoed. The Trump tax cuts that went into effect at the start of the year produced a surge in corporate profits and business optimism. But voters weren’t thrilled, and they punished Trump and his fellow Republicans in the midterm elections, turning control of the House of Representatives over to Democrats.

Job growth was strong in 2018, with wages inching up. But as the year ends, worries about a slowdown and possible recession are mounting. President Trump’s protectionist trade policies have irked investors, with stocks gyrating up on news of a breakthrough in his trade dispute with China, and down on news of setbacks. The new deadline for a deal with China is March 1, 2019. And that may come as the investigation by special counsel Robert Mueller into Russian interference in the 2016 elections reaches a crescendo. Here are six predictions for the Trump economy in 2019:

Trump will get his way with the Federal Reserve. Trump has repeatedly griped about the Federal Reserve raising interest rates and blamed the Fed’s monetary tightening for declines in stock prices. Most economists think the Fed is pursuing prudent policy by gradually raising short-term interest rates from zero a few years ago to more normal levels. That’s a traditional bulwark against inflation, plus, the Fed needs room to cut interest rates in the future as monetary stimulus, when the economy hits a rough patch.

The Fed, however, seems likely to grant Trump’s wish in 2019, and slow or stop its interest-rate hikes. A few months ago, amid strong economic growth, most forecasters expected the Fed to hike rates three or four times—a quarter point each time—for a total hike of a full percentage point in 2019. But the Fed has gotten more dovish, amid slowing growth and a wobbly stock market. The CME Group’s FedWatch tool now projects a 37% chance of two Fed hikes next year, a 35% chance of one hike and a 7% chance of no hike.

[See why Trump peaked in 2018.]

If the Fed does ease up, one challenge for Fed Chair Jerome Powell is protecting the Fed’s independence and making clear the Fed changed course for compelling reasons involving the economy, and not because of presidential browbeating. Trump may not help with that. He tends to claim credit for anything that aids the economy, and could very well insist the Fed backed off on rate hikes because he said to.

Trump will resolve the trade dispute with China. He’ll have to, actually. Trump will be desperate for wins in 2019, and he may also look for ways to stimulate a slowing economy and give stock markets a boost. Making a trade deal with China would help with both, and the new trade deal he finalized with Canada and Mexico provides a template. That update of the old North American Free Trade Agreement didn’t change much, but it did give Trump the opportunity to claim victory without causing much harm to trade among the three countries. Trump could do something similar with China, accepting a deal in which China opens its markets a bit more to American firms and promises to stop stealing American technology. China would have to go along, obviously—but they might if they could make verbal agreements that wouldn’t change much, in reality.

President Trump at the White House on Dec. 13, 2018. (AP Photo/Evan Vucci)

He’ll fight with Democrats about prescription drug prices. Trump says he wants to lower drug prices, something Democrats agree with. But his approach is much softer than Democrats prefer. Trump wants to speed drug approval, approve more generics and rely on market dynamics to lower prices, while Democrats prefer more aggressive measures such as giving Medicare the authority to negotiate directly with drugmakers. Despite some areas of overlap, odds of legislation to address the matter are low, because Democrats believe health care affordability is a signature issue for them, and they’re unlikely to settle for milquetoast outcomes.

A modest infrastructure deal is possible. Nobody in Washington cares about budget deficits, so it’s possible there could be a relatively small agreement on an infrastructure spending bill—say $100 billion in new spending over a decade. That’s far less than the $1 trillion or more Trump has called for in the past, but Trump’s earlier plan relied upon private funding that won’t materialize unless there are tolls and other user fees to reward investors—a politically unpopular approach. A smaller, more traditional bill might be possible, though, especially if it looks like a slowing economy could use a shot in the arm.

Trump’s popularity will fall below 40%, and stay there. A slowing economy will erode Trump’s support among people who don’t necessarily like him, but think his policies are working. There’s mounting evidence the $1.5 trillion Trump tax cuts won’t permanently boost economic growth or raise wages for most workers. Most economists expect slowing growth in 2019, with a recession possible in 2020 or 2021. Perhaps half of the 42% of Americans who approve of Trump will stand by their man no matter what. But he’ll lose some of the others as doubts rise about his economic policies. Declining approval will weaken Trump’s political muscle, with more fellow Republicans daring to distance themselves from him.

But Trump will still be president a year from now. Federal prosecutors have now linked Trump with campaign-finance felonies, and there’s growing evidence his policies toward Russia, Saudi Arabia and other nations may be connected to his personal financial interests. But none of that means Trump will be leaving office. The Justice Department is unlikely to bring charges against a president while he’s still in office. House Democrats seem aware that impeaching Trump could make him more popular, not less, as it did Bill Clinton in the late 1990s. And even if House Democrats voted to impeach Trump—which requires only a majority vote—conviction in the Senate requires a two-thirds vote and is unlikely unless there are more egregious violations than we know about. A year from now, Trump may be embattled and angry, but he’ll also be planning his reelection campaign.

Confidential tip line: rickjnewman@yahoo.com. Click here to get Rick’s stories by email.

Read more:

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman