Cautious Optimism: How White House Advisor Comments on GDP, Rates, and Deficit

White House Senior Advisor Kevin Hassett offered a comprehensive outlook on the U.S. economy on Wednesday, touching upon Gross Domestic Product (GDP) forecasts, monetary policy, and the ongoing government shutdown. Hassett projected a modest GDP growth rate for the current quarter while noting significant progress in reducing the national deficit and commenting on the current strength of the U.S. Dollar.

Economic Outlook and Shutdown Impact

Hassett forecasted that GDP growth for the current quarter would likely fall between 1.5% and 2.0%, contributing to an estimated 2.0% GDP for the entire year. Crucially, he acknowledged that the ongoing government shutdown is expected to negatively impact this quarter’s economic performance.

Despite the headwinds, the advisor highlighted encouraging signs regarding the nation’s fiscal health, anticipating a substantial drop in the deficit this year—by approximately $600 billion. He attributed this reduction to a mix of factors: roughly one-third from tariff revenue, one-third from increased tax revenue fueled by economic growth, and one-third from reduced government spending. He also noted that both the U.S. trade and fiscal deficits are trending downward. Hassett firmly cautioned against relying on inflation to solve the deficit, stating that such a path could lead the country “on the road to a financial crisis.”

Monetary Policy and the Fed

Addressing the Federal Reserve, Hassett described the current inflationary momentum as “pretty directional,” suggesting that inflation is not yet at the ideal level. While the advisor agreed with the rate cuts implemented in the previous two Federal Open Market Committee (FOMC) meetings, he stated that the Fed is unlikely to enact a deep 50 basis point cut, instead favoring a smaller 25 basis point reduction.

Hassett echoed the sentiment that interest rates could be “a lot lower,” aligning with the President’s public stance. He offered a clear contrast in policy inclination, asserting that if he were a member of the FOMC, he would be “more likely to move to cut rates,” indicating a divergence from the current cautious approach. In fact, when asked, Hassett confirmed he would be willing to serve as the Fed Chair if asked. Finally, he expressed confidence that future supply-side policies will be key to enabling sustained economic growth without triggering a surge in inflation.