Over the past couple of weeks there has been this growing sentiment that America is in for another recession. This has been a conversation that has been taking place privately for a while, but is now in the 24 hour news cycle. The main reason for the surge in conversation on this topic came last week Wednesday the 14th, when the Dow dropped 800 points amid a yield curve inversion in the bond market.
This was significant because the last time this happened was in 2007 right before the Great Recession of 2008. Prior to this volatility in the market, the Federal Reserve on Wednesday July 31st made the decision to lower interest rates a quarter of a percentage point amid fears of a slowing economy. These fears stem from a global economic slow down and the on going trade war between the United States and China.
Historically, since 1975, the United States has experienced recessions varying in severity within 6-10 year intervals. Being that we are currently half way through our 11th year recession free, the reality of one is ever present.
The issue here is timing. President Trump is entering an election year and the last thing any incumbent wants is an economic collapse of any kind. Regardless of one’s views on Trump, his main sticking point has been his economy. He earned a huge political win with his tax cuts, unemployment rates are at an all time low, and the market has been bullish since he’s taken office.
All that being the case however, one cannot overlook this year’s historical government shutdown. At the beginning of this year the United States underwent it’s longest government shutdown in history, 35 days. During that time period, 800,000 federal employees were without pay. All it took was for them to miss one pay check before they were in the streets protesting because poverty in that moment was a reality for them. This is the argument of experts, on paper the Trump economy is booming, but in reality there are signs of economic stagnation and the economy not working for the common person.
So what does this all mean for Trump? Since the recession rumors have started Trump has been doing everything in his power to stave off economic concerns. In addition to press, yesterday (August 21st) he forgave student loan debt for disabled veterans, is currently contemplating the idea of a payroll tax cut (reducing the amount of taxes taken out of a person’s pay check each pay period), and has doubled down on his toughness against china as a necessity for economic stimulation. Additionally, the market has bounced back this week in spite of the inversion.
The fact of the matter that cannot be ignored at this point, is that the economy needs to be stimulated. Trump is already taking steps in that direction but it is evident that buying power needs to be given to the people who are actually buying.
The word recession by itself insights a visceral response; and with one looming in the distance Trump’s next moves are going to be essential; not only in his ability to continue to effectively pander to his base, but also if he wants to win new voters come 2020. While it’s unlikely that an election year recession would drastically negatively impact Trump’s ability to get re-elected, in such a case, there would definitely be a lot more people who would think twice before making that decision.
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