TLDR:
- Kevin Hassett expects U.S. GDP growth to reach 4% next year amid a surge in capital spending.
- AI-driven productivity gains could raise long-term growth potential to around 2%.
- Hassett says the Fed risks appearing partisan by delaying further rate cuts.
- Softer labor data and fiscal uncertainty may be temporary, tied to the recent shutdown.
Former NEC Director Kevin Hassett said the U.S. economy is positioned for robust growth next year, projecting a 4% expansion driven by a surge in capital spending and productivity.
He cited a nationwide boom in factory construction and machine purchases, calling it one of the largest investment waves in modern history. Hassett added that AI-driven efficiency gains are enhancing worker output and pushing underlying productivity growth toward 2%.
However, he warned that political indecision in Congress and monetary hesitation from the Federal Reserve could slow this recovery.
Hassett, speaking on Fox Business to Maria Bartiromo, described the current capital formation as a turning point for U.S. industry. He noted that when businesses commit to long-term investments in production, the ripple effect boosts employment and income growth.
The former adviser said the momentum from AI and infrastructure development could fuel a new “golden age” of economic expansion, provided fiscal and monetary policies align.
Fed’s Inaction Could Deepen Political Divide
Hassett criticized the Federal Reserve’s recent stance, suggesting the central bank appears partisan for holding off on further rate cuts despite favorable conditions.
Referencing recent inflation data, he pointed out that prices have cooled faster than expected, with Bloomberg surveys showing over 40 economists forecasting weaker inflation prints. He argued that these improvements, combined with growth headwinds from the government shutdown, justify additional easing in December.
He noted that the Fed’s September meeting signaled three rate cuts ahead, but by October, policymakers backed away from that guidance.
According to Hassett, nothing material changed between those meetings except a temporary GDP drag from the shutdown. He said this shift in tone raises concerns that political calculations may be influencing monetary decisions.
Hassett also suggested that the Fed’s credibility could face renewed pressure if it ignores softer labor conditions. While the job market has cooled slightly, he attributed that softness to uncertainty caused by the ongoing budget gridlock in Washington.
He maintained that once the government reopens, hiring should stabilize, and growth will resume its upward trajectory.
The economist concluded that the Fed’s reluctance to act contradicts its own data-driven principles. He warned that failing to deliver a rate cut in December would be difficult to justify to both markets and the public.
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Source: https://blockonomi.com/hassett-slams-indefensible-rate-pause-as-economy-eyes-4-growth/