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Amid Coronavirus Scare, Taking The Temperature Of The U.S. Economy

DAVID GREENE, HOST:

So here's a question that affects, well, all of us. How is the U.S. economy doing? The answer - far from simple, especially with the uncertainties we are facing with the coronavirus, the partisan standoff in Washington, also earlier reports of a global economic slowdown. President Trump's budget proposal, unveiled yesterday, is forecasting growth. Steve spoke to the president's acting budget director, Russell Vought, and this is what he said.

RUSSELL VOUGHT: We continue to forecast a 3% economic growth. In terms of this year, we think it will rebound to about 2.8%, go up to 3% from here on out into the window.

GREENE: Now, that, we should say, is more optimistic than most other government and private forecasts. Let's talk economics with David Wessel, director of the Hutchins Center at the Brookings Institution, frequent voice on our program. Hi, David.

DAVID WESSEL, BYLINE: Good morning, David.

GREENE: All right, so if the Trump administration is sounding a lot more optimistic about growth than, like, most other people, are they explaining what's giving them that optimism?

WESSEL: Yes. So the White House 3% forecast, which we should note was set in stone in early November before we realized how bad the coronavirus is, is about 1 percentage point more growth each year than the Congressional Budget Office, the Federal Reserve, the International Monetary Fund, and most private economists. The White House says, look, we assume, as presidents usually do, that all our other growth-enhancing proposals will be adopted - de-regulation, infrastructure spending, and all that. And the other forecasts don't assume that. But that really overstates the economic boost that the president's policies, even if they were enacted, would likely provide. And also, the White House says if the economy grows much faster than everybody expects, they still think we'll have a low inflation rate and low interest rates. And that's really not what most other economists think.

GREENE: Can I ask you about the coronavirus and how it plays here? I mean, obviously, this is a health crisis first and foremost, but it could really affect the economy. The Federal Reserve chair, Jay Powell, is expected to bring this up when he speaks to Congress today. What is the big fear when it comes to economics here?

WESSEL: Well, as - you're right. Federal Reserve chair Jay Powell testifies before Congress today on his semi-annual report to Congress. They filed a written report in advance, as they usually do, and they say it's really hard to know how bad the coronavirus will be. It hurts demand in China, obviously, and China is a much bigger part of the world economy than it was back in the days of SARS. It disrupts global supply chains, and so it's going to have a negative effect. Most experts expect that to be passing - like a bad quarter or so - but we really don't know.

Meanwhile, all the other signals in the U.S. economy are looking pretty good, and the Fed is happy about that. Low unemployment, low inflation, the recession scare has evaporated. But it says it's more worried that the economy will disappoint than surprise on the upside, and a lot of people think they're going to end up cutting interest rates again this year.

GREENE: I mean, we look at some of the things you're talking about - a booming stock market, low interest rates, budget deficit. Isn't that the kind of recipe that could lead to some kind of bust based on what we've seen the past?

WESSEL: Yeah, I mean, look. We have booming stock market, very low interest rates, trillion-dollar budget deficits as far as the eye can see. That kind of looks like the combustible combination that could lead to financial excesses and a bust. And it very well could. These things are hard to predict. But usually financial crises are preceded by a big buildup in borrowing. A decade ago it was mortgage borrowing. And although the Fed and others are worried about a surge in lending to the weakest corporations, in general, borrowing isn't that much out of control. So the people who think about these things don't see a financial crisis on the horizon. Of course, they often don't see them coming.

STEVE INSKEEP, HOST:

David Wessel, director of the Hutchins Center at the Brookings Institution. David, always great to have you. Thanks.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.