Though some of the respondents to his Mid-America Business Conditions Index survey lay some of the trade conflicts that are ongoing at the feet of previous administrations inaction, rather than the action of the current administration, economist Ernie Goss takes a different view.
“I’m a little troubled by mixing what I see as politics, that would be the recent threat to increase tariffs on Mexico and economics,” said Goss. “Economics always loses in that battle. That threat alone has had an impact on the stock market and I think, if fully implemented, it will slow growth and slow growth even more in this part of the country and for that matter, the nation.”
The threatened actions against Mexico could take the trade relationship between the two countries backward, when it looked like it was headed forward.
“One real problem here is this could jeopardize passage of the USMCA, that’s the new NAFTA, which has not been passed by Congress yet,” said Goss. “This could undermine that passage and that would be a very big concern to not have passed by Congress and be out there without an agreement with Mexico and Canada.”
Goss also sees negatives in current U.S. monetary policy.
“The Federal Reserve raised rates in December,” said Goss. “That’s probably a mistake. The short-term interest rates, which are influenced by that, controlled by the Fed, are a bit higher than what we’d like to see. In fact, short-term rates are now above long-term rates. That’s what we call an inverted yield.”
Inverted yield curves have preceded every recession since 1956. According to Investopedia, a recession has come within 7 to 24 months of such an event.