The 2024 race for the White House is already influencing federal economic policy and market behavior and will continue to do so until voters hit the ballot boxes.
That’s according to Thomas Tzitzouris, head of fixed income research at New York City-based Strategas Research Partners, who gave the keynote speech at Providence Business News’ Economic Trends Summit on Jan. 24.
Tzitzouris says fiscal policymakers are now factoring in political winds into their decision-making.
The Federal Reserve historically has been seen as an impartial fiscal arbiter, but Tzitzouris contended that it no longer remains above the fray. Many are questioning its independence and whether “its ability to finance deficits in a cost-effective way is diminishing,” he said.
Even if it means a continuation of debt and deficits, both parties have an incentive to stay in power by not disrupting financial markets before Election Day. “Forget about the ‘Real Housewives of New Jersey,’ ” Tzitzouris said. “This is going to be an all-out fight that will dominate the entire economic landscape.”
The U.S. Treasury has been buoying the economy with its own version of CPR to keep consumer spending alive, according to Tzitzouris. “I call it ‘consumer purchase resuscitation,’ ” he said.
Now, the Federal Reserve must come to the rescue, reversing the “unprecedented” liquidity injections, short-term borrowing and other forms of strategically designed “central planning” that can make business cycles more volatile and put more pain on Main Street businesses in the long run, he said.
The increased federal and consumer debt load has crowded out other forms of consumption. The S&P 500 may be setting records, but “not because earnings growth has been stellar,” he said. Household debt and credit card delinquencies are rising. Credit is tight and interest rates remain stubbornly high.
“The U.S. economy remains addicted to Washington stimulus,” he said. “In the last 24 months, the consumer has been falling behind on every aspect of household finances.”
The wild card will be how much and when this stimulus injection takes place, Tzitzouris said.
“We are not worried about the banking system collapsing,” he said. “But we’ve never seen this much bottom-up price pressure on the consumer in the last 30 years. This poses a long-term headwind for the consumer, unlike anything we have ever seen.”
Tzitzouris predicted that tax cuts, roughly $136 billion, will be a welcome shot in the economic arm but with most of the windfall going to large corporations. Roughly $80 billion will be sopped up by large-cap companies and private equity shops. Or perhaps a student loan relief package “strategically designed to get them to spend rather than pay down debt to keep the economy pushing forward,” he said.
“That’s not going to a small business in Lincoln, R.I.,” he said. “It’s not about long-term fiscal stability. It’s about keeping the consumer happy until November 2024.”
Rhode Island should outperform where it would have fared in the past in part because of the influx of higher-income households during the COVID-19 pandemic and the end of its reliance on manufacturing.
Labor demand remains strong, and unemployment is low. However, small-business creation is still a weak spot and “a long-term impediment to growth and income levels,” he said.
The state has long been characterized as the “first in and last out” among states during times of economic turmoil, but Tzitzouris offered what he thinks will be a slight twist on that pattern during the next recession, which he believes could come as early as 2025.
“We are not going to be first in,” he said. “But we might still be last out.”
