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Mar 11, 2019 • 11 tweets • 3 min read
Trump's FY2020 budget is live whitehouse.gov/wp-content/upl…

A few points worth considering on the president's budget, despite a hundred declarations that it will be dead on arrival on Capitol Hill
1) White House budgets get to assume that all their policy changes--mainly, revenue and spending changes--become law. They also get to incorporate the effects of these choices into their economic assumptions. This allows them to present what might be called a "best case" scenario
2) Because Trump has been president for two years in an economic environment that has largely met his own forecasts, comparing the deficit projections from his first submission in 2017 to his submission today can't be easily explained by economic changes
3) Trump's first budget (2017) projected that deficits would reach $488 billion (2.2% of GDP) by 2020 and $209 billion (0.8% of GDP) by 2024
4) Trump's latest budget (2019) projects that deficits will reach $1.1 trillion (4.9% of GDP) by 2020 and $700 billion (2.6% of GDP) by 2024. These are more than double the projections from two years ago.
5) Trump's first budget proposal relied on large discretionary spending cuts that Congress, controlled by the GOP, rejected

His current budget proposal also relies on large discretionary spending cuts to bring down deficits. If they are also rejected, deficits will grow more.
6) All of these projections assume the economy continues to grow around 3%. If growth slows, deficits will rise even more than they already have relative to initial projections.
7) Finally, if you add up the revenue projections for the first eight years of Trump's proposal in 2017 and compare it to actual and projected revenue for the same period in today's proposal, the current budget shows revenue will be $2.032 trillion less than the 2017 projection
8) In other words, with little change to the economic forecast, and putting aside that Congress has not acted on the spending cuts, Trump's 2019 budget is showing revenues will be $2 trillion lower than forecast in 2017.
9) This is not a complete surprise. Several economists pointed out in 2017 that the budget appeared to be double counting $2 trillion in revenues

/end/
wsj.com/articles/donal…
Postscript: Here's a chart comparing revenues in Trump's current budget proposal (2017 actual revenues plus 2018-2024 projections), versus the projections for these same years in his proposal two years ago

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More from @NickTimiraos

Nick Timiraos Profile picture
Feb 17
I spoke to Eric Rosengren recently about monetary policy, and he sounded a bit concerned. We've posted an edited transcript of the interview here.

He worries raising short-term rates fast could be very unpredictable and makes a case for selling assets wsj.com/articles/trans… Image
The Fed "continued to do asset purchases for too long," said Rosengren. (He cited health reasons when he resigned from the Boston Fed last September, nine months ahead of a mandatory retirement, following scrutiny of his financial disclosures.) ImageImage
Rosengren isn't suggesting that these type of active balance sheet sales are what the Fed *will* do, but he lays out the argument for why it would be a better way to tighten financial conditions and depress risk taking. Image
Read 5 tweets
Nick Timiraos Profile picture
Jan 28
Fed calls this week

• JP Morgan (Fri): 5 hikes this year (Mar, May), 3 next year
• BofA (Fri): 7 this year (every meeting), 4 next year
• Morgan Stanley (Thurs): 4 this year (Mar, Jun)
• Deutsche Bank (Wed): 5 this year (Mar, May, Jun), 3 next year

All hikes are ¼ pt
Fed calls this week

• BNPP (Thurs): Six hikes this year, three next year
• Standard Chartered (Fri): Four this year (at the next four meetings), two next year
• Wells Fargo (Fri): Five this year (Mar, May, Jun), three next year

All hikes are ¼ pt
Fed calls this week

• UBS (Wed): 3 hikes this year (Mar, Jun, Sept)
• Barclays (Wed): 3 hikes this year (Mar, Jun, Sept)
• Jefferies (Fri): 5 hikes this year

All hikes are ¼ pt
Read 4 tweets
Nick Timiraos Profile picture
Jan 19
A short thread on a few new items from the Fed's the 2016 FOMC transcripts:

Previously, the Fed released the "key" identifying the individual projections from the Summary of Economic Projections after a 10 year delay. In 2016, the FOMC agreed to do this after just 5 years.
(They didn't do this retroactively, so the names from previous years will still be released after 10 years).

The upshot is we can now see where half of current FOMC participants thought the unobserved variables like r-star and u-star were as of their Dec 2016 view of the economy
Back then, the unemployment rate had most recently been reported at 4.6%. Only one participant (Evans) thought the natural rate was lower.

Most officials, including Powell and Yellen, estimated a neutral fed-funds rate at 2.75%.
Read 6 tweets
Nick Timiraos Profile picture
Jan 11
Atlanta Fed President Raphael Bostic said the central bank should be aggressive in shrinking its balance sheet, allowing its holdings to decline by at least $100 billion a month reuters.com/business/feds-…
What Bostic is talking about here is allowing some but not all of the Fed's security holdings to mature without reinvesting principal every month.

In Oct '17, the Fed started by allowing $10 billion in securities to mature every month ($6B for Treasurys, $4B for MBS)
These amounts rose every quarter, so that by Oct '18, the Fed allowed $50 billion in securities to mature every month (Trump referred to this as the "50B's"). That was divided between $30 billion for Treasurys and $20 billion for MBS.
Read 5 tweets
Nick Timiraos Profile picture
Jan 10
Several former Fed officials have commentaries today that all say the same thing.

Here's Larry Meyer: "Yes, the FOMC is behind the curve. A dangerous place to be, especially if the FOMC is very far behind the curve, as I believe is the case today."

1/
Former NY Fed President Bill Dudley says the central bank's latest economic projections amount to a dovish "fantasy" that inflation can return to 2% with rates gently rising up to 2% over the same three year timeframe

2/bloomberg.com/opinion/articl…
Dudley says the Fed may need to raise rates more than four times in a year.

"They're going to go fairly slow at first.... It wouldn't surprise me at all if we get into an every meeting kind of cycle at some point."

3/
Read 4 tweets
Nick Timiraos Profile picture
Jan 7
All signs are pointing to the Fed raising interest rates in March after another jobs report that shows an ever-tighter labor market wsj.com/articles/jobs-…
To understand how the Fed will react to this report, it is best to not pay much attention to the supposedly underwhelming payroll print. Those have been revised higher in recent months.
Instead, look at signs of labor market tightness via the:

• rising prime-age employment rate (it has jumped a full percentage point, from 78% to 79%, since August),
• a falling unemployment rate (U-6 is at 7.3%, just three tenths above Feb 2020 level),
• and rising wages.
Read 4 tweets

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