On the same day that the Trump administration boldly reasserted that it would achieve 3 percent economic growth through "MAGAnomics," official Washington naysayed that lofty goal.
"We are promoting MAGAnomics — and that means sustained 3 percent economic growth," Trump Office of Management and Budget Director Mick Mulvaney wrote in an op-ed published in the Wall Street Journal Thursday. MAGAnomics, of course, is a portmanteau combining the president's catchphrase "Make America Great Again" with "economics."
Mere hours later, though, Federal Reserve Chairwoman Janet Yellen pooh-poohed the idea of raising annual gross domestic product growth to 3 percent.
"I think it's something that would be wonderful if you could accomplish it, I'd love to see it, I think it's challenging," the central banker said during a Senate hearing.
The gross domestic product grew at a 1.4 percent annual rate in the first quarter of this year. Fed officials see that accelerating, but only to 2.2 percent this year. In the long run, they expect it to settle in around 1.8 percent on average.
Raising the growth rate to the 3 percent rate that was more typical in past decades would be "challenging," Yellen said. Because population growth is slowing, raising GDP growth would require greater worker productivity. To hit 3 percent, Yellen suggested, productivity growth would have to rise from about 1 percent today to above 2 percent, a task she said would be "hard." Translated from Fedspeak, that means it is close to impossible.
Separately, the Congressional Budget Office dealt a blow Thursday morning to the Trump administration in its analysis of Mulvaney's fiscal 2018 budget. The office, Congress' in-house team of budget and economic experts, projected that Trump's policies would raise the growth rate only one-tenth of a percentage point, from 1.8 percent to 1.9 percent in the years ahead.
Crucially, though, the CBO said that it couldn't fully estimate how much Trump's proposals would accelerate growth because they didn't include enough detail. The only reason it scored the budget as boosting growth was because of Trump's spending cuts, which would lower the federal debt and thus keep interest rates lower and private investment higher. None of Trump's ambitious plans for juicing growth were included in the analysis.
Those proposals include several big-ticket items meant to increase productivity growth, and thus economic growth. The centerpiece is tax reform. But the agenda also includes regulatory reform, improving trade deals and increasing energy production.
The administration can claim that those would get the job done, in terms of ramping up economic growth. But it's an open question. On Wednesday, one outside group suggested that the tax reform wouldn't boost growth much at all.
The Tax Policy Center, a nonprofit think tank headed by an Obama Treasury official, issued a "dynamic analysis" of a fleshed-out version of Trump's tax reform outline. The group found that it would modestly boost growth, partly because the deep tax cuts would increase the federal debt, leading to higher interest rates and less private investment.
Asked about the Tax Policy Center's analysis Thursday, Treasury Secretary Steven Mnuchin dismissed it, saying the administration's full tax plan has yet to be released.
"We are focused through tax reform, regulatory relief and trade to get back to 3 percent or higher," he said.