For those expecting President Trump to provide details around his pro-growth fiscal policies; tax cuts, regulatory relief, defense spending, they were greatly disappointed. He did reiterate his plan to spend $1 trillion on infrastructure projects and briefly talked about moving forward with domestic pipeline projects, but that was as specific as he got. President Trump’s first address to Congress will be remembered for his conciliatory tone and America First message that came through loud and clear throughout his hour long speech. He stated we should “buy American, hire American” and that his job is to represent America, not the world.
President Trump said he believes in free trade, but it must be fair trade as well. He touched on a number of familiar topics like building the wall on our southern border, a merit based immigration policy, bringing back millions of jobs, draining the swamp, military spending, taking care of our veterans, replacing the Affordable Care Act and protecting the American people from radical Islamic terrorists. Although his speech had a conciliatory tone and reiterated our commitment to NATO, he again called on NATO partners to pay their fair share.
The tenor of the speech was very similar to speeches of past Presidents when addressing Congress. Trump knows that he will need help from both sides of the aisle in order to pass the initiatives he promised voters as a candidate. Trump called on Democrats and Republicans to work together for the good of the American people. We see the road to passing legislation for a number of his fiscal policies to be long and bumpy. However, we do expect some form of a tax plan to be passed that lowers corporate taxes. We expect a substantial infrastructure spending plan to be passed, although the size will be much lower than $1 trillion. We believe banks will benefit from a more pro-business regulatory environment and that defense spending will increase substantially. Our macro view of the economy remains what it was heading into the year. We expect the economy to grow at a rate that exceeds the Fed’s estimate, that inflation will reach the Fed’s target and that interest rates will move higher, but in an orderly manner. We remain convinced that the acceleration of growth due to an already improving economy coupled with fiscal spending will take place in 2018 and that inflation will rise due to higher wages and import costs. Fiscal spending will also likely lead to higher deficits.