Trump — not the Fed — is the biggest threat to the US economy, ex-India central bank chief says
Former Indian central bank chief Raghuram Rajan warned that the biggest threat to the U.S. economy will come from President Donald Trump's trade policies.
In an opinion piece titled "Is Economic Winter coming?" published on the Project Syndicate website Tuesday, Rajan said the old rules governing macroeconomic cycles no longer seem to apply and it remains to be seen what might cause the next recession in the U.S.
"But if recent history is our guide, the biggest threat stems not from the U.S. Federal Reserve or any one sector of the economy, but rather from the White House," Rajan, who is currently a professor of finance at the University of Chicago Booth School of Business, said.
He further highlighted that Trump's administration "doubled down" on its trade war with China just after the Fed embarked on its rate rising path last year.
"After markets started tumbling in late 2018, the Fed backed off. With a comprehensive deal to resolve the trade war nowhere in sight, and with a formal impeachment inquiry into Trump now underway, the Fed is unlikely to tighten monetary policy anytime soon," Rajan said.
Meanwhile, a second factor Rajan points to is geopolitical risks such as the attack on Saudi Arabia's oil facilities in September. "A spike in the price of oil could tip the global economy into recession."
Rajan who served as the governor of the Reserve Bank of India for three years, from Sept. 2013 to Sept. 2016, said while recessions are unpredictable by nature, the greatest threat is not rising rates but unforeseen actions in areas such as trade and geopolitics.
"If the world had fewer wannabe strongmen, the global economy would be much stronger than it is," Rajan said. "Unfortunately, most of today's authoritarian leaders are there because voters put them there."
When asked for comment, a White House spokesperson provided this statement:
"Free, fair, and reciprocal trade is essential to American and global prosperity, but many countries have pursued a strategy of unfair competition for decades that has created barriers for our great farmers, ranchers, manufacturers, and entrepreneurs. President Trump inherited a problem that previous U.S. presidents foolishly chose to ignore. President Trump has instead used every available tool to level the playing field for American workers and reduce barriers to the export of our goods and services. With a booming economy, low unemployment, and rising wages – despite severe headwinds from severe monetary tightening and a global recession – it's clear the President's policy of fair and reciprocal trade along with lower taxes and deregulation are working."