By Diane C. Swank, Chief Economist, Grant Thornton
A slowdown in the third quarter, losses in manufacturing, weakness in the service sector and a moderation in employment have sent a chill through financial markets and renewed fears of recession. The impeachment inquiry in-and-of itself should not feed those concerns, but it has added to policy uncertainty. No one is quite sure what can be accomplished before the end of the year, given the heightened (understatement) partisanship in Washington.
A larger issue is how the president plays his cards. If he reacts by further escalating the trade wars with China and the European Union (EU), then the U.S. economy will likely slip into recession in 2020. If he doesn’t and instead comes to some kind of a deal with China, this economic expansion has a much better chance of continuing.
The Federal Reserve has a limited role to play with additional rate cuts. The Fed simply doesn’t have many tools, given how low interest rates already are, to shore up confidence and offset the drag created by escalating tariffs and the tit-for-tat of a trade war with China, the world’s second largest economy.