State of the Union takes a business perspective
By: Joseph Kukral
The business community kept a close eye on the perspective agenda set forth by President Trump during his State of the Union address on Tuesday, Jan.
Hoping for a continuance of favorable policies, business leaders and investors are expecting the President to build upon the recent success of tax reform.
In one of the longest addresses in comparison to past presidents, Trump made sure to provide a slew of economic successes to reassure the public he has fulfilled his campaign promises.
Noting the continuing trend of strong economic growth, he celebrated the fact that 2.4 million jobs were created in the past year.
Many economists, however, have articulated this continued growth has little to do with changing administrations, and is attributable to the robust consumer confidence, rising wages and continued business investment.
Moreover, experts say all of these attributes are cyclical in nature, and therefore, not much affected by positive intentions of Congress nor the President.
Business leaders are sure to promulgate the recent tax bill as a major stimulant to increased economic activity. Undoubtedly, the new tax law has ignited a flurry of future business investments and concomitant growth.
Following the address, the stock market enjoyed a small boost in value, but was short-lived due to actions by the Federal Reserve.
According to Barron’s, the market jump was stymied by a Federal Reserve policy statement by Chairwoman Janet Yellen, who alluded to a future increase in the fed funds rate.
Fearful of inflation and strengthening demand, the Federal Reserve intends to quell any excessive market activity that could hinder long-term growth.
In anticipation of increased short-term treasury bill rates, market investors are predicting long-term interest rates to increase as well. In response, there was a jump in the 10-year treasury bond interest rate.
This has dampened financial markets for the time-being as investors fear inflation and rising interest rates will end the nine-year bull market.
Considering the manner in which these events are unfolding, President Trump and fellow Republicans are in a bind following the State of the Union Address.
According to the Wall Street Journal, Congressional Republicans and the President intend to work on the entitlement reform for the remainder of the year.
If financial markets and business leaders are to remain confident in the Trump administration’s ability to foster a strong economic climate, the increasing deficit heralded by the $1.5 trillion in tax cuts will have to be relieved by spending cuts somewhere in the budget.
If President Trump cannot meet this SOTU promise to reform entitlements, promote work and thereby cut spending the slide of the bull market may ensue.
Especially considering a tightening Senate of 51–49 Republican control, further policies to provide stimulus to businesses are unlikely.
According to The New York Times, Senate Majority Leader Mitch McConnell has stated he will not use a budget resolution to pass entitlement reform with a simple majority, but rather will abide by normal Senate rules requiring 60 votes.
These circumstances limit President Trump in his ability to meet promises set in his State of the Union Address.
The business community will watch closely as to whether Trump can garner enough political capital to spearhead legislation to reassure and promote American business interest.
Editor’s Note: Information from The Washington Post, The New York Times, The Wall Street Journal and Barron’s was used in this report.
