TLDR:
- Kevin Hassett expects US GDP growth to reach 4% next year, amid a surge in capital spending.
- AI-powered productivity gains could increase long-term growth potential to around 2%.
- Hassett says the Fed risks appearing biased by delaying further rate cuts.
- Softer labor market data and budget uncertainty may be temporary, following the recent shutdown.
Former NEC director Kevin Hassett said the following American economy is positioned for robust growth next year, with growth of 4% due to strong increases in capital expenditure and productivity.
He cited a nationwide boom in factory construction and machinery purchases, calling it one of the largest waves of investment in modern history. Hassett added that AI-driven efficiency gains increase worker output and push underlying productivity growth towards 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 with Maria Bartiromo, described the current capital formation as a turning point for American industry. He noted that when companies commit to long-term investments in manufacturing, the ripple effect drives employment and income growth.
The former adviser said the momentum of AI and infrastructure development could fuel a new “golden age” of economic expansion, provided fiscal and monetary policies are aligned.
The Fed’s inaction could widen the political divide
Hassett criticized the Federal Reserve’s recent stance, suggesting the central bank appears biased for delaying further interest rate cuts despite favorable conditions.
Referring to recent inflation data, he pointed this out prices have cooled down faster than expected, with Bloomberg surveys showing that more than forty economists predict weaker inflation figures. He argued that these improvements, combined with growth headwinds from the government shutdown, justify further easing in December.
He noted that the Fed’s September meeting promised three rate cuts, but policymakers backed away from that guidance in October.
According to Hassett, nothing significant has changed between those meetings, other than a temporary slowdown in GDP due to the shutdown. He said this change in tone raises concerns that political calculations could influence monetary decisions.
Hassett also suggested that the Fed’s credibility could come under renewed pressure if it ignores softer labor conditions. Although the labor market has cooled somewhat, he attributes that weakness to the uncertainty caused by the economic crisis continuing budgetary impasse in Washington.
He claimed that once the government reopens, hiring should stabilize and growth would resume its upward trajectory.
The economist concluded that the Fed’s reluctance to act conflicts with its own data-driven principles. He warned that failure to provide a rate A cut in December would be difficult to justify for both the markets and the public.
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